21 April, 2016

SMEs tightening belts and highlighting the need for careful planning

Small-medium business are tightening their belts and putting pen to paper to plan their way through a tightening a number of challenges facing the economy according to the findings of the latest Westpac Business Growth Monitor.

The biggest drop in confidence came from medium size businesses with 10+ employees where expectations of growing the business have plummeted nearly 20 percent from the last quarter (49% vs. 68%). In the quarter to 31 March, the Westpac Business Growth Monitor measured the confidence of more than 500 SMEs (with less than $5 million turnover) on the economy, their plans to grow, intentions to create jobs and need for funding.

Westpac’s Head of Specialists Commercial, Steve Atkinson said businesses are hunkering down and pausing for a breath to an extent. As they plan their future carefully over the next year or so.

“There are a lot of factors now in play that businesses don’t have control over – the Chinese economy, uncertainty in Europe, the US elections and closer to home the dairy downturn.

“Businesses are starting to put the dots together and trace these uncertainties back to their own businesses and their own future”.

While the intention to hire staff has increased (13% vs 8% in Q1), Atkinson noted that fewer businesses are looking to commit to large loans and it appears business are looking at ways to self-fund more.

The monitor showed that overall, businesses are increasingly cautious. Of those looking to borrow in the next six months, only 31 percent are looking for loans of over $50,000, compared to 45 percent in the previous quarter – a 14 percent fall in $50k + loans in just three months. “This is hardly surprising in an economy linked so heavily to the primary sector, but overall we’re being kept on a relatively even keel by buoyed confidence in Construction, Trade, Transport and Tourism, where businesses are hiring more.

“While only 35 percent of primary sector businesses expected to grow in the next six months, trade, transport and tourism businesses were showing more optimism, with 17 percent reporting increased employment over the last three months”.

“In the last quarter we’ve seen a six percent increase in the number of businesses who have a business plan in place to achieve their growth goal (67% vs 61%).”

Steve Atkinson said that SME businesses owners have not traditionally been great succession planners, but we’re seeing stronger considerations around retirement.

“The latest survey shows there are even more owners looking to exit their business over the next two years (up from 10% to 12%).

“This all comes back to the importance of planning. SMEs can be extremely vulnerable to wider economic factors, so business should always plan to prosper throughout the economic cycles and be thinking about their retirement from the get-go. It’s about being prepared for all economic conditions and all stages in life.”

KEY FINDINGS

Revenue growth

- 52% expect revenue to increase over the next 6 months vs. 31% who expect no growth or a decline.

- Breakdown by industry for SMEs expecting growth: 35% Primary; 58% Manufacturing; 55% Trade, Transport and Tourism; 65% Construction; 54% Business Services.

- Of the businesses planning to grow and borrow to finance the growth, only 31% anticipate loans of $50,000 or more.

- 67% of those with plans for growth have a business plan to achieve that growth.

Economic confidence

- 39% anticipate growth in the economy over the next six months, vs 34% who see the economy as unstable.

- The Construction sector is most confident in the economy over the next six months and the primary sector is the least confident, 65% vs 16%.

Employment

- Staff hiring expectations up(13 percent vs 8% in Q1)

- Businesses are continuing to take on employees to serve existing customers (74% vs 61% in Q1)