SMEs Face Rising Costs in 2025, But Technology Offers Path to Growth

As Australia’s small and medium-sized enterprises (SMEs) look ahead to 2025, the outlook is a mixed bag of challenges and opportunities. A new report from NAB Group Economics reveals that while rising costs continue to dominate the concerns of business owners, many are turning to technology and innovation to not only cut expenses but also drive revenue growth.

With 75% of SMEs expecting business costs to increase in the next 12 months, many are bracing for another tough year. However, the NAB report shows that SMEs are determined to adapt, with a clear focus on leveraging technology to boost productivity and maintain profitability.

Cost Pressures Mount for SMEs

For Australian SMEs, the cost of doing business is expected to rise further in 2025. According to NAB’s findings, this trend is being driven by inflationary pressures, supply chain challenges, and increasing operational costs. While tax cuts and a potential decline in interest rates may offer some relief, SMEs are still preparing for a more expensive year ahead.

However, business owners are not sitting idly by. Many are turning to cutting-edge technologies, such as artificial intelligence (AI), cloud computing, and automation, to streamline operations and reduce costs. By embracing these tools, businesses aim to stay competitive while improving efficiency and reducing reliance on manual processes.

Tech Investment as a Key Strategy for Growth

Despite the financial pressures, many SMEs are choosing to be proactive, particularly when it comes to technological investment. The report highlights that businesses are increasingly looking to AI and other digital tools not only to reduce costs but also to drive new revenue streams. Automated systems, for example, are helping businesses to cut down on time-consuming tasks, freeing up resources for innovation and customer engagement.

Moreover, customer retention is becoming a priority for many businesses, with SMEs adopting CRM systems and loyalty programs to strengthen relationships with existing clients. In an environment where customer expectations are higher than ever, these tech investments are proving crucial for staying ahead of competitors.

Labour Shortages Still a Major Concern

Another challenge looming over Australian SMEs in 2025 is the ongoing labour shortage. Despite efforts to fill roles, many business owners report difficulties in finding qualified candidates, especially in skilled sectors. With an ageing workforce and skills gaps widening, SMEs are being forced to get creative with recruitment.

To overcome this hurdle, many SMEs are investing in training and upskilling existing staff, while also exploring non-traditional recruitment methods such as apprenticeships and partnerships with educational institutions. These strategies not only help businesses fill vacant positions but also build a loyal and capable workforce.

Navigating Red Tape and Compliance

In addition to rising costs and labour shortages, regulatory burdens are adding another layer of complexity to SME operations. The report shows that while tax cuts and potential interest rate reductions offer some relief, red tape remains a significant concern for many businesses. Especially for those in sectors with complex environmental and cybersecurity regulations, compliance can be costly and time-consuming.

Business owners are calling for clearer and more streamlined regulations, with a focus on reducing administrative burdens while maintaining essential safeguards. Some are also seeking more support from government programs, such as grants and advisory services, to help navigate the regulatory maze.

Sustainability on the Agenda

Sustainability is another area where SMEs are focusing their efforts in 2025. While the upfront costs of adopting green technologies can be high, many businesses are recognising the long-term benefits. From energy-efficient solutions to waste reduction, SMEs are increasingly investing in sustainable practices to reduce costs, meet customer demand, and improve their environmental footprint.

As consumers become more environmentally conscious, businesses that prioritise sustainability are likely to see a positive impact on their brand reputation and customer loyalty. This shift towards greener practices is not only about complying with regulations but also tapping into a growing market of eco-conscious consumers.

A Resilient Outlook for 2025

Despite the challenges, the outlook for Australian SMEs in 2025 is not all doom and gloom. Many business owners are taking proactive steps to position themselves for growth in a difficult economic environment. Whether through investing in technology, adapting to new labour market realities, or embracing sustainability, SMEs are laying the groundwork for a more resilient future.

As we move into 2025, it’s clear that small businesses in Australia are facing a period of change. But with strategic planning, innovation, and a willingness to adapt, SMEs are poised to continue thriving, even amid rising costs and ongoing uncertainty.

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