Recession would cause over half of SMEs to cut staff

With the odds of a recession placed at 50 per cent by CBA and HSBC, new research shows that 55 per cent of SMEs would make staff cuts if that were to happen.

In a survey of an independent panel of 202 business owners and decision makers across the SME spectrum by Small Business Loans Australia, it was revealed that over half of SMEs will cut employee related expenses first in the event of a recession.

Only five per cent of business owners said they would consider implementing pat cuts for senior leaders, including themselves, while 33 per cent said they would prioritise staff redundancies as a cost-saving measure.

Four in five medium-sized business owners said they would make cuts directly affecting their employees, this includes cutting both internal and outsourced staff, decreasing employee spend, pay cuts for senior leaders and cutting opportunities for business travel.

Alon Rajic, Founder and Managing Director of Small Business Loans Australia.

Alon Rajic, Founder and Managing Director of Small Business Loans Australia, said smaller businesses may be less likely to cut internal staff due to operating leaner teams, where everyone is vital to the day-to-day operations.

“They often also have stronger interpersonal ties between employees and managers, making it challenging for smaller business owners to consider laying off internal staff.”

Rajic said it was important for business owners to start considering the potential of risks now and think what actions they might take, considering the impact on their business as well as for their employees.

“We know that more than three-quarters of SMEs expect their cash flow to be affected by the current economic climate. When it comes to a recession, smaller businesses face similar risks as their larger counterparts, but their limited scale leaves them more vulnerable and increases the risk of failure in a downturn.”

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