Small business confidence slipping

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Small business confidence slipping

SMEs are feeling the pinch, according to two recent surveys. But it’s not all doom and gloom.

Feeling worried about your business? You're not alone, according to two recent surveys of small and medium enterprises by MYOB and Westpac.

However, not everyone is feeling so negative about their business and there are some signs of a brighter future. 

MYOB's latest Business Monitor survey found that many SMEs consider the economic outlook to be "bleak": 42 percent expect the economy to decline over the next 12 months, even though 72 percent expect their own revenues to remain static or increase.

"Despite a range of election initiatives promised to help businesses get ahead, business owners still don't feel confident that the economy has turned the corner," said MYOB CEO Tim Reed.

"We had been looking for signs of improvement, but the gloomy sentiment has now been consistent over the past three MYOB Business Monitor surveys. Uncertainty from the election may be contributing to this unease."

Cash flow is now the number one worry for SMEs. It's not so much of a problem for businesses dealing with the public and insisting on payment at the time of sale or when the service is performed, but a perennial problem for B2B SMEs is that when times get tough their large customers tend to get somewhat cavalier about payment terms, but suppliers don't extend the corresponding generosity.

Reed also noted: "It is particularly interesting that interest rates have jumped from tenth place to equal fifth place on the list of business pressures.

"SMEs, particularly franchisors, are considering the possibility of interest rate rises over the next 12 months, which they feel could have a negative impact on their returns. This is interesting because it is out of line with most economists."

Last week the Reserve Bank announced that official interest rates will remain steady at the record low of 1.75 percent for June.

Westpac-Melbourne Institute SME Index down

Meanwhile, the Westpac-Melbourne Institute SME Index has slumped from 97.0 to 83.0 between the first and second quarters of 2016. This seems to be driven by falling profitability caused by declining sales and increasing costs.

Based on a survey of 400 businesses around Australia, the index found that almost a third of owners have responding in part by increasing their own working hours.

Although 84.6 percent of SMEs say they manage the majority of tasks such as book keeping and payroll through software tools or apps, 17.3 percent say they spend more than 40 percent of their time on internal administration such as payroll, accounts and contracts.

Westpac senior economist Matthew Hassan explained the drop in the index in terms of the ongoing downturn in the mining sector, cooling housing markets, still subdued consumer spending and increasing competition.

The latter point may a particular issue, as most SMEs are still seeing year-on-year increases in sales up on a year ago, yet even more are reporting lower profits. "The implied contraction in margins is a clear sign of heightened competitive pressures," Hassan said.

Future is brighter

"Fortunately there is some relief ahead. While competitive pressures are likely to remain fierce, the RBA’s May interest rate cut should give some support to demand. The Federal Budget also introduced a range of measures directly aimed at supporting SMEs, including a company tax cut from July 1.

"With the RBA expected to cut interest rates again in coming months, SMEs should see at least some improvement in their bottom lines. Whether that is enough to tip the balance sentiment-wise remains to be seen."

That’s reflected in the Westpac-Melbourne Institute study, which found that SMEs are less pessimistic about the future. Although the current conditions index is 70.9, the future conditions figure is 95.1 – just below the 100 figure that would indicate neutral sentiment.

Female business owners and managers are slightly positive (106.6) about business conditions in the next three months, compared the negativity (89.7) shown by their male counterparts.

In addition, the MYOB survey found, startups and new businesses are more positive about the future: 49 and 41 percent respectively expect revenue to increase over the next 12 months, compared with the overall figure of 31 percent. But then if new enterprises can't achieve revenue growth, who else can?


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