Over two-thirds of SMEs don’t expect any economic improvement over the next year and the majority have seen revenue either fall flat or decline over the past 12 months, with the average drop at 27%, according to the latest MYOB Business Monitor, in its most devastating result ever.
Chief executive Tim Reed says the survey’s result is the worst in its 10-year history, and notes that both confidence and expectations among SMEs about the economy are “really, really bad”.
The survey highlights a growing concern among SMEs that many won’t be able to survive the next six months if consumers continue to save over Christmas instead of spend.
“There are a broad set of factors influencing the economy including global economics, the North American downturn, and the European debt situation. That all plays into this,” Reed says.
“Most Australian businesses know we are part of a global economy, and there is some doubt about how long China can continue to power its economy forward in light of the rest of the world’s economic problems.”
The MYOB Business Monitor, which surveyed 1,000 businesses of up to 200 employees and weighted them to their appropriate representation in the national economy, paints a devastating picture for the SME market.
The survey shows 68% of businesses don’t expect any recovery in the next 12 months, and 42% expect a recovery to be more than 18 months away. That’s up from 17% in the March 2010 barometer.
Reed says the number of businesses that said late last year there would be an improvement over the next year was 58%, and now that’s just 21%. “That is one of the most standout statistics,” he says.
The survey also shows a devastating blow to revenue. Over three-quarters said revenue was at the same level as last year, or down, with the average decrease at 27%. Looking forward, 30% of businesses expect lower sales this Christmas, compared with 14% last year, while only 29% expect an increase.
The next year isn’t any better, with 58% of businesses expecting revenue to remain the same or fall over the next 12 months.
“This is a massive fall,” Reed says. “If you’re a small business owner, your rent hasn’t gone down 27%, you still have to pay the utility bills, you still have to buy product. This is a big blow to a lot of businesses.”
“Because the Australian dollar has been high, imported goods have gone down in cost. But this is still a big blow.”
Across the country, those businesses which said they have more work or sales in the pipeline for the fourth quarter was 29%, down from 49%, while the number of businesses that said they have less work rose from 14% to 30%.
There are pockets of hope. The number of businesses that said they had higher amounts of work in the pipeline was 36% in South Australia, 33% in Victoria, 29% in New South Wales and 27% in Western Australia.
Start-ups are also doing well, with 44% saying they have more work in the pipeline, and 28% of businesses between two- and five-years-old also reported more work scheduled. However, 40% of established businesses over 10-years-old say they have less work lined up, followed by 34% of businesses aged between two to 10 years. Nearly one-quarter of start-ups said they had lower amounts of work lined up.
Queensland was the worst performing state, with 38% of businesses saying they had less work prepared for them.
The sector-by-sector outlook also paints an extremely distorted picture. While 27% of the professional and business services, along with finance and insurance, industries expect the economy to improve over the next year, only 20% of retail businesses think so. Construction and trades are the worst, with only 15% expecting a recovery – down from 38% earlier this year.
And only 16% of business owners in construction and trades report more work than usual in the pipeline, with 45% reporting less work than usual.
Reed says the low expectations show businesses aren’t hopeful that Christmas will bring any reprieve.
“Businesses are preparing for the fact that Christmas will be worse than it has been in the past. There are some glimmers of hope in retail sales, and the Reserve Bank has taken a much more balanced position, and that will make people confident.”
“But with the savings rate so high, people just aren’t spending.”
Reed says despite the gloom, and the “batten down the hatches” approach taken by many SMEs, there are some things businesses can do to improve their position.
“One of the bigger things is to go and get online. Two thirds of Australian consumers first search the internet when looking for a local business, but only about one-third of businesses have a website.”
“There is a big gap there between consumer behaviour and business response. That is a proactive thing businesses can do to get some work in the pipeline and hopefully increase their reach.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
