Green shoots for SME sector, but many not out of woods yet. As JobKeeper ends, many small businesses are still looking to close or sell unless market conditions improve.
A national survey of 1253 small businesses has found signs of improved SME confidence, although many businesses remain uncertain about their road to recovery.
The March 2021 ScotPac SME Growth Index recorded two positive signs of small business recovery – more owners are planning to invest in their businesses in 2021 compared to last year, and there has been a significant rise in average revenue growth forecast for the first half of the year.
The twice-yearly SME Growth Index is Australia’s longest-running in-depth research on small business growth prospects. East & Partners polled 1253 SMEs nationally and found 685 of them plan to invest in their own growth over the next six months (in late 2020, only 650 were willing to invest).
ScotPac CEO Jon Sutton said the Index recorded an eight-point rise in average SME revenue growth forecast for the first half of 2021, reflecting a strong bounce back in confidence for many businesses.
Mr Sutton said all of these “green shoots” are a promising sign that the small business sector as a whole has withstood the worst of the economic impact of a one-in-100-year crisis.
“After a year facing pandemic and recession, there’s now a sense of SMEs really wanting to get back to business as usual,” he said.
“But despite these positive signs, our research shows the recovery is uneven and varies significantly by state, region and industry. There are still many small businesses who are doing it tough.”
Still signs of uncertainty for SMEs
The study asked SMEs about their strategies for recovery and growth in 2021. Two-thirds of small businesses (65%) say they will make changes to the structure of their business in 2021, in order to recover from the pandemic or to take advantage of opportunities, Mr Sutton said.
“This SME intention to restructure includes looking at other ways to fund their businesses.
“I believe business owners are on the right track with this intention, because to be in a position for recovery and growth it’s essential to have adequate funding in place.”
There remains a high level of uncertainty around recovery: 34% of SMEs say without significant market improvement they’ll close or sell their business, an increase from 31% who were considering these options in 2020. Only half those polled had NO plans to close or sell.
Other signs of SME concern about recovery include:
- 1 in 4 SMEs are unsure about how to recover
- Almost 1 in 4 had cashflow issues after being declined from a lending product
- 1 in 5 have to cut costs to replace stimulus funds
- Almost 1 in 5 will make arrangements with the ATO to manage their cashflow
- 1 in 6 will replace stimulus funds by using working capital finance
When asked how they feel about running their business now compared to before the pandemic, 44% of SMEs expressed confident sentiments while 55% highlighted more pessimistic feelings.
More than one in three (37%) are more positive or relieved about prospects for their business now than they were at the start of 2020. The full sentiment breakdown was:
- 19% feel more positive than in early 2020
- 15% are less positive
- 18% feel relieved
- 16% are exasperated
- 15% feel uncertain
- Only 7% are enthusiastic
- Almost 1/10 SMEs believe they didn’t get enough support
Mr Sutton said small business owners’ desire to “get back to business as usual”, combined with their uncertainty about how to achieve this, highlights the need for SMEs to seek expert advice.
“Given how bad things could have been, you could say it’s astounding how well the SME sector came through such a challenging year,” he said.
“There are positives, but we have to be realistic about what lies ahead. We still have half of the businesses polled this round saying they are not yet ready to invest back into their business.
“It will be hard for the economy to really take off until more small businesses are comfortable and willing to do so.
“Many businesses are forecasting growth, but many are not out of the woods yet.
“Regardless of whether their focus is growth or recovery, it is crucial that they secure appropriate funding and seek good advice to put themselves in the best position to achieve it.”
SME Growth Index: Australia’s longest-running in-depth research on small business growth prospects has been conducted twice a year since 2014 by market analysts East & Partners. In Jan-Feb 2021, a representative national sample of 1253 $1-20m revenue businesses were surveyed and interviewed.