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A $34 Billion Problem for Small Businesses and How This Pair Stays Ahead of the Game

Ruth Tate sits at the sewing machine in her eponymous boutique in Sydney’s inner west.
Tate is a fashion designer who trained in the UK and now makes her own clothes from original patterns. But she says making a profit is becoming increasingly difficult during the current cost of living crisis.

“This year, like last year, rents have increased by 10 percent. Prices for fabrics have increased, especially linen,” he explains.

“Profit margins are getting smaller and smaller, so yes, it is stressful.”

A woman in a brown jacket sits in front of a sewing machine in a fashion studio.

Fashion designer Ruth Tate says making a profit is becoming increasingly difficult during the current cost of living crisis. Fountain: SBS / Sandra Fulloon

To cope with the cost crisis, the 58-year-old is collaborating with her neighbour Fabio Stefanelli, who owns the restaurant next door.

By day, his shop displays original clothing designs. By night, it transforms into an Italian restaurant. It’s a win-win situation for both entrepreneurs.
“Once I close for the night, the restaurant staff comes and moves all my furniture and my shelves, the pottery, the cushions to the back of the store,” she said.

“Then the tables and chairs that are stored below are brought up, with all their cutlery, napkins, glasses. And the store becomes a dining room.”

The view through a glass window shows restaurant tables set up inside a fashion store.

Ruth Tate fashion store transforms into an Italian restaurant at night. Fountain: SBS / Spencer Austad

“The collaboration is really good. It brings in new customers and they’re a different group than my usual customer base. So it works well,” Tate said.

Using Ruth Tate’s space during the evenings when the store is closed also helps Stefanelli earn additional revenue to better manage rising business costs.

“My restaurant is a very small space. That’s why Ruth and I have an agreement,” Stefanelli said.

“If we add additional tables during peak times, we can make more money.”

A man in a colorful shirt squeezes pasta from a small device.

Fabio Stefanelli, the restaurant’s owner, says using the boutique space at night helps him earn additional income and control rising costs. Fountain: SBS / Spencer Austad

They began sharing space in winter this year after obtaining all the necessary permits from the city council and say the move has also been a hit with customers.

“It’s definitely the first time I’ve eaten at a restaurant that’s also a fashion store during the day,” said customer Trevor McCann.

Stefanelli agrees: “When people come up to a table in the fashion store, they say, ‘Wow, this is something new, something special.’ And they enjoy the different atmosphere.”

In exchange for providing overnight space, Tate is rewarded with free catering for events and functions.

“Every two weeks, Ruth hosts a private party for fashion designers and we pay her with our food, we pay her with our hospitality, our Italian way of saying thank you,” Stefanelli said.
“Many customers also come back the next day and buy some clothes. So it’s a good deal.

“Also, Ruth is a very nice person and I [am] I am very happy to be able to collaborate with this fantastic woman. And I hope that many other entrepreneurs will have a neighbour as nice as me.”

Experts welcome solutions like this as a way for Australia’s 2.5 million small business owners to survive the current economic challenges.

A man in a blue suit and tie is smiling.

The latest data from ASBFEO shows that requests for assistance from struggling business owners have increased by 50 percent this year. Fountain: Supplied / ASFEO

Bruce Billson, Australian Small Business and Family Enterprise Ombudsman (ASBFEO), says: “This is exactly what we need right now – the kind of ingenuity that drives innovation and productivity improvements.”

“And it’s a great example of the ingenuity you often see in small, family-owned businesses.”
Recent figures from ASBFEO reveal a 50 per cent increase in requests for help from struggling business owners this year.
“Business owners tell me this year is as difficult as any they’ve experienced,” Billson said.

“Many small businesses are dipping into their cash reserves to keep their business afloat. And recent surveys have revealed that nearly one in four have no cash reserves, while 18 percent have less than a month’s worth of cash on hand to meet their obligations. And costs continue to rise.”

The exterior of a small restaurant with customers sitting at tables.

La Favola is among the small businesses facing economic challenges this year. Fountain: SBS / Sandra Fulloon

“Interest rates have gone up, energy costs have gone up, rents have gone up because they are often linked to inflation. Also, staff costs and wages are going up, and we’ve seen an increase in retirement pensions as well,” Billson said.

“The materials that are used for manufacturing and the products that are used for restaurants are also increasing. So this is a real constraint and in many cases the owners are not able to pass on those increasing costs. So it has become a very, very difficult time in terms of margins and profitability.
“In fact, fiscal statistics for the last full year show that 46 percent of small businesses are not profitable right now.”
The Australian Securities and Investments Commission’s annual insolvency data shows that more than 11,000 companies filed for insolvency for the first time in 2023-24. Overall, the number of insolvencies rose by 39% compared to the previous year.

Tate knows a lot about cost management. He has run several companies since emigrating to Australia in 1995 from London, where he also worked in the fashion industry.

A woman in a brown jacket holds a doll in a colorful floral outfit.

Ruth Tate’s first outfits were made for dolls and designed while she was growing up in the West Indies. Fountain: SBS / Sandra Fulloon

Although Tate’s Newtown store displays recent styles, her first outfits were made for dolls and designed while she was growing up in the West Indies.

“I start by looking at fabric samples. Then I make all my own patterns, prototype, do fittings, sort all the patterns into individual sizes and most of the garments are made here in Sydney,” she said.

“I usually make clothes as I need them, so the cost is reduced and I spend money on materials only when I need them.”

A man in an orange sweater sits at a table inside a restaurant.

Fabio Stefanelli says running costs have increased significantly since he opened the restaurant in 2019. Fountain: SBS / Sandra Fulloon

Stefanelli was born in southern Italy and, like Tate, has followed his professional passion ever since. But he says turning a profit from a restaurant in Sydney is harder than ever.

“Our operating costs have completely changed,” Stefanelli says. “The price of electricity has almost doubled compared to [to] When we opened in 2019.
“Also, the prices of agricultural products are very, very high. We almost double the cost of our food compared to [to] More than two years ago.
“If I raise my prices too much, the customer is not happy. If I keep them too low, it’s a problem for me, I can’t pay the rent and the staff.
“This winter has been a disaster. Not just for me, but for many restaurant owners as well. It’s been a very quiet winter because of the higher cost of living. I’m actually feeling very, very stressed about the economic situation.”

Failure to pay tax debts is an indicator of business difficulties. Credit reporting agency CreditorWatch recently released data showing that thousands of private Australian businesses have failed in the past six months due to non-payment of significant tax debts.

A man in a blue jacket and white shirt smiles at the camera.

CreditorWatch chief executive Patrick Coghlan says they expect ATO tax defaults to continue to rise. Fountain: Supplied / Creditors Observatory

The Australian Taxation Office’s outstanding debt currently stands at around $52 billion, with around $34 billion of that amount owed to small and medium-sized enterprises (SMEs). The explosion follows a “hands-off” approach to debt enforcement during the pandemic.

“We expect ATO tax defaults to continue to be recorded in increasing numbers and of course that will have an impact on the number of insolvencies that occur,” said CreditorWatch chief executive Patrick Coghlan.
According to CreditorWatch, more than 7,000 or one-third of ATO tax defaulters (meaning businesses with debts to the tax office of more than $100,000 that are more than 90 days overdue) are private businesses.

“The sectors that have been hit the hardest are hospitality and construction. We’re also seeing a small impact on retail. And in terms of size, it’s definitely more skewed towards small businesses,” Coghlan said.

Stefanelli has tried many strategies to reduce costs.
“I get up at three or four in the morning to buy products directly from the markets and some nights I close the restaurant at midnight, and we are open seven days a week,” he said.
“It’s a difficult life and I have three children at home.

“A lot of people think that a restaurant is a good business, but it is very, very, very difficult.”

A woman in a brown jacket stands next to a man in an orange sweater in a store.

Ruth Tate and Fabio Stefanelli propose working with local residents to reduce costs. Fountain: SBS / Sandra Fulloon

For Tate and Stefanelli, collaborating is about more than just being good neighbors—they’re also becoming good friends.

And they have this advice for others who are struggling.
“Be creative and think of ways you can expand the use of your tent to someone else who may need additional space,” Tate said.
Stefanelli agrees: “It’s a good idea for small businesses. Instead of fighting with your neighbour, why not collaborate?”

This story was produced in collaboration with SBS Italiano.

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