Business profitability has hit an 18-year low, with a new survey from Sensis revealing that 80% of small and medium businesses saw profit remain flat or fall during the three months to the end of August.
The Sensis Business Index, which is based on a survey of 1,800 businesses with between one and 199 employees, business confidence fell from 28% to 15%, the third lowest result in the report’s history.
The index tracking profitability fell 13% to negative 27%, while the sales index tumbled 8% to 22%. Not surprisingly, the employment index fell 1% to zero.
Report author Christina Singh said retail was the weakest sector in terms of profitability in the last quarter, while manufacturing and construction are likely to be among the least profitable sectors in the next three months.
“This quarter there are simply not many positives in the report,” she says.
“Even during the GFC we tended to have some positives, but it’s all going one way. There were declines in every state and territory. People just aren’t seeing consumer spending and their business is not increasing.”
The poor economic conditions are forcing many business owners to hunt for lower cost ways to expand their businesses.
The survey shows 38% intend to increase their digital presence (up from 33% in the previous survey published in March) while 26% intend to introduce social media activities (up from 21%).
“Businesses tend to be resilient. They are still aiming for growth and looking for ways to drive growth, despite the fact the profitability is at its lowest level. It’s just going to be much harder,” Singh says.
However, there was also an increase in the number of entrepreneurs who intend to sell or close their business, up to 17% from 12%.
“You would expect to see business turnover as the natural course of things, but certainly the increase would be attributable to economic conditions,” Singh says.
There was also a decrease in the number of entrepreneurs who can afford to reduce the amount of time they are personally working in their business. This metric fell from 27% to 22% over the last three months.
The survey also showed support for the Federal Government continues to fall, with the index tracking this metric down seven percentage points during the quarter to negative 48%.
Reasons given for the lack of support include the introduction of a carbon tax, a lack of incentives for small business, too much bureaucracy and a concern government policies are weighing on consumer confidence.
“Businesses are saying much more political things that they usually say. They are saying that Federal Government policy is impacting on consumer spending and that is not normally something we’d see.”
This article first appeared on StartupSmart.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
