2026 Outlook: the year ahead for small businesses

Consumer spending gained momentum towards the end of 2025 as previous interest rate cuts filtered trough. Residential construction work also grew and investment levels by businesses and government also ticked up.

This is an encouraging sign for business owners who rely on day-to-day demand. The improvement will be gradual and should translate into more consistent customer activity over time.

Higher interest rates may impact the pace of growth, particularly later in the year, and mean that some households may remain price-sensitive and delay their decisions to purchase or build a home. But the outlook – including that of the Reserve Bank of Australia – is that demand will continue to grow over the near term.

What this means for you

For many small businesses, the coming year is more about gradual stabilisation than rapid expansion. This is especially true for sectors exposed to discretionary spending, like retail, hospitality and personal services.

What this means for you

The challenge in 2026 will be adjusting to this new normal. Many of you will continue to feel margin pressures, so you will need to make pricing decisions with greater care.

Maintaining customer trust and demand will be just as important as protecting business viability. As a result, improving efficiency and productivity will be critical, allowing you to manage costs and support margins without relying solely on price increases.

Interest rate uncertainty

Interest rates are still impacting business and consumer confidence. Borrowing costs over the past 2 years have been high. This has affected cash flow, investment plans and consumer spending.

The RBA increased the official cash rate at its first meeting of 2026 on February 3 and this will add to borrowing costs.

What this means for you

Conservative financial planning is important. You will need to maintain buffers where possible and avoid overreliance on an early or rapid easing in borrowing costs.

Shifting your mindset from reactive to proactive, by actively observing customer behaviour and tracking weekly trading patterns to adjust your offerings in real time, can make a big difference.

It’s also important to preserve your value and relevance in a tougher environment. Getting creative, by differentiating yourself from your competitors, can attract spend. Offering better ‘bang for buck’ propositions (like 2 for 1) can protect daily sales volumes and reinforce customer loyalty.

Employment levels and wage pressure

Employment levels have remained high, with increased competition to attract and retain staff, particularly in sectors such as hospitality, healthcare and construction. Wage pressures are still present, but they may be starting to stabilise along with employment growth.

What this means for you

The cost of labour varies across sectors and competition for skilled and reliable workers is likely to remain a feature of the business environment. You can better manage these ongoing challenges, by focusing on staff retention, training and workplace flexibility. Look to upskill existing staff members to cover employment gaps.

Population growth and location

Population growth has expanded the customer base for many small businesses, particularly in fast growing suburbs and regional centres.

In Victoria, growth is particularly focused in Melbourne’s outer suburbs and select regional cities, such as Greater Geelong, Ballarat and Greater Bendigo. Business owners in these areas often report stronger population-driven demand, alongside more manageable cost structures.

In 2026, Victoria’s population is likely to continue growing at a moderate pace, but slower than it has in recent years.

What this means for you

Population growth is broadly positive for demand, especially for housing, services, education, healthcare and local retail.

Regional centres such as Geelong, Ballarat and Bendigo are projected to account for around half of regional population growth between 2021–2036, but you need to carefully consider your location choice and cost management.

Lower rents, improved infrastructure and a growing local workforce can provide you with a competitive edge, particularly if you are in customer-facing and service-based businesses.

Growth brings its own pressures, but regional locations increasingly offer a balance of scale, affordability and demand that is harder to achieve in more saturated capital-city markets.

Productivity through investment and technology

Business investment in Victoria continues to be strong. There is a growing emphasis on digitisation, automation and data driven systems to enhance business operations. Traditionally these trends are often associated with large firms, but they can make a big difference for small businesses.

What this means for you

You will see benefits in your business by adopting practical technologies that improve efficiency, reduce administrative burdens and strengthen customer engagement. Even modest investments in digital tools can enhance resilience and productivity over time.

Business confidence in 2026

Despite the broadly positive outlook, risks remain. A renewed lift in inflation could delay interest rate relief and impact household spending. Global economic uncertainty, trade disruptions and geopolitical tensions could also affect costs and confidence.

Your approach for success

Small businesses need to be flexible and prepared to deal with uncertainty.

The business community is highly attuned to economic conditions. We are seeing small businesses asking sharper, more informed questions of their accountants, bankers and advisers.

Small businesses have moved to longer-term planning, using cash flow forecasting, scenario analysis and stress-testing business models against different interest rates and demand outcomes. As advisors we are excited to see small businesses no longer just reacting to economic headlines but actively interpreting what those signals mean for their operations.

Today many of you are better prepared for varied economic conditions and more comfortable making adjustments on the fly. You are also more willing to rethink traditional ways of operating. Your strategy is increasingly proactive rather than reactive. You are staying ahead of changing conditions rather than being caught off guard by them.

Taken together, these signals point to strong resilience in the small business sector. As a community, small businesses in Victoria are more informed, agile and commercially aware, even as conditions remain challenging.

Your success will continue to depend on careful planning, adaptability and disciplined decision-making as economic conditions evolve.