SMEs pessimistic about economy but start-ups forecast revenue growth: MYOB survey

Economicoutlook

Despite federal election promises of greater support for SMEs, businesses owners remain pessimistic about the Australian economy, with two in five expecting it to worsen in the coming year, the latest MYOB Business Monitor revealed.   

The bi-annual national survey of over 1,000 SME operators found that 42% believe the economy will decline over the next 12 months. Further, only 24% of participants are optimistic about Australia’s economic future.

According to MYOB CEO Tim Reed, the pessimistic SME sentiment revealed in the latest Business Monitor is a wake-up call for politicians, who must deliver policies that support businesses, and through this stimulate the economy and lead it to growth.

“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,” Reed said.

He explained to Dynamic Business that SMEs are pragmatic when it comes to election promises, due to Australia’s political reality over the past five to ten years.

“SMEs understand that the process between a government announcing a policy and it actually becoming legislation are not one in the same thing,” he said. “There is a risk that policies are announced but never become legislation. The reduction in company taxes is very popular policy amongst small businesses because they believe it will stimulate the economy, allow them to invest in their own business and keep Australia competitive. However, this requires the Coalition to be re-elected because Labor haven’t elected to support that policy. If the Coalition is re-elected, it then needs to get the policy approved by the senate of the day. So, even if government announces a policy it won’t necessarily become legislation and reality.”

Start-ups optimistic about revenue growth

The Business Monitor showed that two in five participants (41%) expect their revenue to remain the same over the next 12 months. In line with the previous survey, last October, 31% expect their revenue to increase.

While 38% of operators told MYOB, last October, they had more work or sales in the pipeline, the latest survey revealed this number had fallen to 34%.  Additionally, nearly one in four (24%) participants indicated their pipeline activity had declined, compared with 19% in October. Reed said this could be attributed to numerous factors, including election uncertainty.

On a more positive note, the survey showed start-ups (49%), new businesses (41%) and franchisors (47%) were more likely to expect their revenue to increase over the next 12 months. This sentiment was echoed by Gen Y operators (46%) and metropolitan based operators (38%).

SMEs with a social media presence (38%) or a business website (36%) also expect their revenue to increase over the next 12 months, with these operators also reporting more work or sales in their pipeline over the next three months.

Asked why start-ups are more optimistic than other SMEs about revenue growth, despite concerns about the economic outlook, Reed explained to Dynamic Business that entrepreneurialism is valued by the community.

“We are living through a time of change and there are opportunities for businesses that understand that change, even if the macro-economic picture is one of slow-growth,” he said. “Startups are feeling supported right now. The current government has done a lot of work to champion startups and this is an area that has had broad support across most major political parties. Outside of politics, the mindset of Australians is that being an entrepreneur is a great career path and that even if a start-up ultimately fails, founding a business is still worthwhile – it’s an experience that you learn form and an experience that has value.

Cash flow concerns stress owners

While SMEs indicated the same top five stressors as last October, the order of severity had changed.

Cash flow concerns are the number one pressure point for SMEs, up from fourth place on the list.

The other pressures are competitive activity and fuel prices (both down from equal second place), attracting new customers (down from first place), and profitability and price margins (equal fifth place in the last survey).

“It is particularly interesting that interest rates have jumped from tenth place to equal fifth place on the list of business pressures,” said Reed.

“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.”