American Express’s annual Economy of Shopping Small report has found that a third of small business operators fear they risk becoming insolvent in the next three to five years.

The report is based on in-depth interviews with 10 small business owners, and 20-minute surveys with 864 small businesses and a nationally representative group of 1019 consumers.

Only 38 per cent of small business owners say revenue has increased during the past 12 months. This was a decline from the 43 per cent that reported growth last year.

The biggest worries small business owners reported included rising energy prices at 45 per cent, the economic climate in Australia at 43 per cent, and increasing costs at 42 per cent. The report says these are down from 2017, which suggests improving confidence.

The only issues small business owners flagged as more concerning this year are finding new staff with the right skills, and increased competition. Concerns over finding skilled staff rose to 36 per cent from 26 per cent in 2017, while local competition was up from 30 per cent to 34 per cent.

Restaurant & Catering Australia CEO Juliana Payne flagged a lack of advice, assistance and information as a concern of hospitality venues.

“Small hospitality business operators face similar challenges that small business people face everywhere, but they also need to tackle many unique components of the sector,” she says.

“There is no one formula for a successful hospitality business, so peer advice is a critical success factor.”

One in three consumers spend more than $450 a month with small businesses, with more than 12 per cent spending more than $1000 per month. Average spend had increased from $336 per month in 2016 to $471 per month in 2018.

On the other hand, 86 per cent of respondents say they could do more to support small business. This number is even higher among 25 to 34-year olds at 95 per cent.

The report says three-quarters of consumers, 72 per cent, would be more likely to buy from a small business that was recommended by a friend, family member or colleague.

However, two in five consumers, 41 per cent, can’t recall a time they’ve recommended a small business.

Forty per cent of consumers were found to be most likely to use a small business because they expect to receive better customer service and 30 per cent for the quality of the product or service.

Forty-seven per cent prefer a big business for competitive pricing and 32 per cent prefer them for a broader product range.

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“Strong customer service is critical for the success and survival of any small business. Outlets such as coffee shops, cafés or local corner stores rely heavily on loyal customers who come back again and again,” says Lindsay Carroll, Deputy CEO of the National Retail Association.

“A key way to maximise the standard of customer service is to get to know your customers. This includes things such as their name, their usual order and taking the time to have a conversation that extends beyond simply their purchase. If customers feel that they actually know the people behind the business, they’re more likely to become regulars and not take their money elsewhere.”

When owners were asked what the government could do to support small business more effectively, 47 per cent say reduce taxes and 36 per cent wanted the removal of red tape.

“The best way government can support small business is by making sure the economy is healthy, that people are confident and that any compliance is easy for operators to carry out,” says Peter Strong, CEO of the Council of Small Business Organisations Australia.