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SME revenue growth strong, but profitability shaky

SME revenue growth strong, but profitability shaky

The majority of business owners are expecting a rosy period ahead in terms of revenue growth, a new survey has revealed, but profitability is showing some signs of stress.

The My Business SME Sentiment Index found that, in the March 2018 quarter, 58 per cent of SMEs are on track to increase their revenue intake over the next six months. A further 31 per cent are expecting revenues to remain relatively stable.

However, the reading of 48.31 was a slight drop on the previous quarter (50.83), which included Christmas trading and Boxing Day sales. It was also lower than the same period this time last year, when the index sat at 54.13.

Nevertheless, the index is sitting firmly in positive territory, with a reading above 0 indicating growth.

Profitability drew similar comparisons, although a more marked downward trend was evident over the past year. The index reading in March of 38.65 was down somewhat on the December 2017 quarter (41.91), and almost a full 10 points below the peak recorded in the same quarter last year – 48.18 in March 2017.

This drag on profitability over the past year could be part of the reason why employee wage growth has stagnated in recent months.

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The RBA left interest rates on hold yet again this month, in part because of the ongoing issue of poor wage growth.

“Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet,” the bank’s board said in announcing its verdict.

It has been a difficult cycle for the RBA to break, with low sales growth leaving employers with little ability to boost wages, and in turn low wage growth keeping a lid on business sales – particularly in the struggling retail sector.

However, it noted, positive momentum may soon materialise.

“The rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills,” the RBA said.

SME revenue growth strong, but profitability shaky
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