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Businesses told to brace for recession

Maja Garaca Djurdjevic
Maja Garaca Djurdjevic
09 June 2020 2 minute readShare

Australian small businesses are being urged to focus on best and worst-case scenario planning to ensure they have the right framework in place to continue to operate through a recession.

A survey of nearly 500 Aussie small-business operators has revealed 62 per cent believe the severity of the current recession will be the worst the country has experienced in 20 years, with two-thirds planning to consolidate or cut costs as a result of the ongoing volatile environment.

The biannual survey, carried out by Prushka Fast Debt Recovery, suggested that only 22 per cent of SMEs are confident in the state of their business right now, with only a minority or less than a third planning for growth over the next 12 months.

Roger Mendelson, CEO of Prushka, has urged SMEs to prepare to continue operating in an uncertain environment for some time.

“Until now, businesses have had to make tough decisions to survive and, as restrictions slowly begin to ease, there will be new challenges to overcome,” Mr Mendelson said.

“Now more than ever, businesses should be focused on best and worst-case scenario planning, to ensure they have a framework in place that allows their business to operate no matter the circumstances.”    

More than half of SMEs told Prushka the biggest negative impact on their business in the past 12 months had been COVID-19, followed by the state of the economy and reduced consumer spending.

When asked what their biggest concerns were over the coming 12 months, SMEs noted profitability, managing cash flow and growing their customer base as overarching worries.

To mitigate any potential issues with cash flow, 56 per cent of SMEs said they have a cash buffer in place; however, businesses admitted they are continuing to rely on personal funds as a temporary measure, a trend which has risen by 16 per cent over the past 18 months.

“It is concerning that SMEs are still continuing to rely on their own funds in times of strife, as this can place pressure on families. Forecasting a business’s cash flow ahead of time can help you plan any expenses around your projected cash inflows and ensure you are adhering to your credit collection processes,” Mr Mendelson said.

Positively, Prushka said, businesses appear to be exercising tight credit assessment criteria, with nearly two-thirds of businesses spending less than five hours a month chasing unpaid debts. This figure has increased by 20 per cent over the past 18 months.

But even though SMEs are spending less time chasing payments, 47 per cent of businesses are finding it harder to collect debt, and 53 per cent believe it is harder for debtors to repay debts compared to this time last year.

Mr Mendelson said: “While it’s a good sign that SMEs are spending less time chasing debts, it’s still concerning they are finding it hard to collect.

“For SMEs to survive in this new normal, they must be adaptable, flexible and able to act on decisions quickly. Strong cash-flow processes are more important than ever for survival.”

Businesses told to brace for recession
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Maja Garaca Djurdjevic
Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of My Business. 

Maja has a decade-long career in journalism across finance, business and politics. Now a well-versed reporter in the SME and accounting arena, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies and enabling citizens to influence decision-making.

You can email Maja on [email protected] 

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