The 3 factors shaping your small business in 2022, with COSBOA CEO Alexi Boyd

COSBOA is the Council of Small Business Associations Australia – it was founded in 1977, with the underlying principle that small business needs a voice – and not a voice informed by the interests of big business. As COSBOA’s CEO Alexi Boyd brings her 20 years as a BAS agent for small and family-run businesses to COSBOA’s work in advocacy and education. In this interview, Alexi outlines the three major factors that will be shaping the trajectories of small businesses in 2022.

The labour market:

Staff shortages have been a major challenge for the salon industry – can you explain the factors behind this?

“Surprisingly, we’ve found worker shortages are across the board. It doesn’t matter what industry you’re in – all industries are affected by this. It is a knock-on effect. Firstly, international students and visa holders are excluded, and visa holders have been sent home when their visas have ended, particularly problematic for the services industry. But then it has been compounded by a lag in tertiary education, and the VET Sector who haven’t kept up with demand. So there is a double-down effect where we don’t have skilled workers entering the country, and we haven’t cultivated a skilled workforce.”

Then borders have closed within Australia in response to the virus, and suddenly we’re faced with competition for labour. 

Why do you think training is missing the mark?

“Aged care and childcare services have been a focus for the government over the last few years – because there were ongoing shortages in those sectors.”

“But, having not focused on all industries equitably over the last five to ten years has compounded the problems caused by worker shortages caused by the international arrival freeze. It is much worse than it would have been.” 

“In terms of where COVID-19 funding has gone, we see the “hard hat” syndrome. The government is focused on the male-vote and male-dominated careers, ignoring the impact that industries like the services industry have on the economy. The services industry is a massive sector of the economy that needs to be nurtured and looked after, not just with a bandaid approach to respond to a crisis.” 

“For the beauty industry, this lack of investment closes off entry points for study, but it also closes of opportunities to gain experience. I’ve heard from many female-oriented sectors that there is a fundamental disconnect between education services and the workers who are commencing employment. They don’t have the experience and don’t have the acumen to start their own business.”

“Across the board, with lots of different VET educational services, students are not being taught to operate a business. Their training is focused on performing a service rather than working on or in a business. That’s problematic because, of course, you want people to have a certain level of experience before they start their own business. But also, when they enter the workforce and accrue that experience, it’s placing further pressure on small business owners to be teaching another person how to effectively run a business – when it should have been part of their education.” 

“Ultimately, we want as many people starting businesses as possible – so they should be entering the workforce prepared.” 

2. Least-cost routing:

While many might have heard of lease-cost routing, not everyone understands it. Can you explain why this is a critical issue for small business?

“We’ve been very focused over the last three to four months on the issue of “least-cost routing.” Least-cost routing is all about debit card fees. The increased cost of credit cards has translated to more people using debit for their everyday transactions. There are two ways to process that transaction fee when you make payment. There is the cheapest option, EFTPOS, or the most expensive option, Visa and Mastercard.” 

“Either way, the banks process those transactions and take a cut, but they make more money if those transactions are pushed through Visa or Mastercard than if they were made through Eftpos.” 

“The difference between least-cost and most-cost Australian businesses is $67 billion a month. That figure included massive companies like Woolworths, who make millions of transactions a day. But if you break down the costs to small businesses, they are enormous – we’re talking millions of millions of dollars a month across all small businesses.” 

“Small business owners don’t have time to sit down, unpack, and look at their merchant fees. So they’re not in a position to negotiate because a) they often don’t even realise they’re being charged, and b) who wants to change banks?” 

“So much when you’re a small business owner is wrapped up with your personal finances and lending – it’s hard to extract yourself. To make matters worse? Even banks struggle to explain their fees to customers because the processes are complex.”

“When you think about a typical beautician, they might have a terminal, a square reader, and fees associated with that processing. Then they have the typical costs associated with having a business bank account and their monthly merchant fee surcharge.” 

“It’s ridiculous. I spent ten years as a BAS agent filling out these forms for clients and still couldn’t figure it out.” 

“The complexity is, of course, to the banks’ favour. Banks will turn around and say, “we offer least-cost routing!” and I say that’s bullocks! Because a) if I ask any small business owner what most-cost routing is, they don’t know that terminology, and b) the “offer” really means they have it printed on page 64 of the 100-page terms and conditions document. That is not really “offering.” 

What we are demanding is that the cheapest option is the default. If a bank wants to upsell to businesses and offer more cyber security, snazzier terminals or rewards, then they can upsell. But to take advantage of the complexity of the issue or the merchant misunderstanding is really the big taking advantage of the small. It’s been going on for years, and there have been multiple things put in place by the RBA. At one stage, they said, “you’re allowed to surcharge” well, okay, that’s great, but how much are you paying for that actual transaction? If you don’t know how much you’re paying for the transaction (and a lot of people don’t) – how can you know if you’re surcharging correctly? A lot of people are doing it wrong. 

Are new forms of payment complicating this issue?

The other argument is around new forms of payment, like mobiles and wearable devices. Apple doesn’t have to adhere to the Australian payment system, as they are not considered a payment provider. They are thought of as simply a railway track through which a transaction is routed. 

In Australia, Apple only offers VISA Mastercard. You can’t use VISA and Eftpos currently. But they do offer this option in the US and Europe. They won’t do it here until they’re forced to. The reason? They take a cut! So at the moment, when you pay using a debit card on your phone that small business owner will pay the highest cost, which is sometimes six times higher than normal transaction fees. The consumer doesn’t know and most small businesses don’t know it’s happening. Even if the small business owner is aware of the problem, they can’t turn away the customer. Customers have many forms of payment available to them now and they expect to be able to use all of those payments. 

We’ve been working through it with the Farrel Review, which is currently unpacking the Australian payment system. 

While it seems like a complex issue, the solution is simple – mandate least-cost routing as default, across the board! 

3. Stock and Supply:

Stock, supply and demand is an issue facing small businesses, salons and retailers – what’s causing the issue and is there an expectation around when it will be resolved?

“Like staffing, stock and supply is not a stand-alone issue. It is an existing system with problems that Covid-19 has compounded. Currently, shipping costs are going up five-fold. We hear from the service industry that business owners are wiping out their profits to fly stock in – this is a particular issue for hair and beauty where people need a product not only as inventory for sale but also for the delivery of services. “

“COVID-19 related furloughs in international warehouses are causing shipping issues globally. We now have a knock-on effect where the inefficiencies that have been part of the freight supply chain are made worse by half-empty containers. For example, there is an existing preference for shipping companies to go between Asia, North America and Europe, over Australia because we are double the shipping costs. They will make twice as much profit by cutting us out.” 

“When things are strained, pitch points are unavoidable. For example, only three factories globally manufacture a particular chip that goes into cars—one of those burnt down in South Korea a few months ago. When everything is at a tipping point, it takes something like this, or industrial action at an American port, to severely impact small businesses in Australia.” 

“So it is immensely frustrating. Here we are, the economy is opening up, people can move again, have a lot of disposable income, and want to spend. Small businesses either can’t open at their maximum hours because of worker shortages or can’t sell the stock they want to sell. It becomes an issue of asking the consumer for patience and understanding when it comes to these delays.”

Want more?

Alexi Boyd was able to confirm that beauty businesses will have access to the NSW Government’s Summer Stock Guarantee, in the event of snap lockdowns. Read our explainer of the SME Summer Holiday Stock Guarantee.

Want to understand what’s driving supply and demand? Understand the international supply chain issues affecting your business – and learn how to manage them – during a blockbuster holiday season.

For more about reducing staff turnover, and finding the right people for your business, read our interview with Jeannie Burke of Venustus.

Read the current issue of our digital magazine here:

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