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SME confidence crash: Blip or blowout?

SME confidence crash: Blip or blowout?

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Multiple separate surveys have shown a crash in business confidence among SMEs. But is this just a temporary blip on the radar, or are market conditions really getting worse?

The Australia Small Business Sentiment report by Trading Economics showed confidence falling from a score of 7.92 in the first quarter of 2018 to just 1.54 in the second quarter.

That result was fractionally weaker than the long-term average score of 1.56 – although the index has a history of volatility across quarters, and it remains in positive territory (a reading above 0 still indicated positive sentiment).

Then on Tuesday (11 September), the well-regarded Westpac-Melbourne Institute SME Index reported a similar finding, with sentiment collapsing to its lowest level since June 2016, as current conditions fall and profits decline.

The latter issue has affected 40 per cent of the 400 businesses surveyed over the past year, and is likely to only worsen further, as two-thirds of SMEs forecast lower or unchanged revenue for the next 12 months.

Unsurprisingly, it was the construction, financial and real estate services sectors reporting the biggest drop in sentiment – weighed down by falling property prices in most capital cities, a glut of new apartments and the fallout of the banking royal commission.

“The housing cycle has turned and is clearly starting to bear down more heavily on exposed SMEs,” Westpac senior economist Matthew Hassan said.

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“Meanwhile, much of the wider SME sector continues to face intense pressure on profitability. This is most evident in retail where SMEs see significant declines in profit despite a modest lift in sales.

“The results suggest they are struggling to adapt to intense competition, new entrants, market ‘disruptors’ leveraging new technologies, red tape and regulation and energy costs.”

Mr Hassan noted the biggest concern with the results is that it is not start-ups and new businesses that are struggling the most.

“Notably, the SMEs that look to be struggling the most are those that have been in business the longest and those with a higher turnover. This suggests the most established small businesses are finding the changing landscape more challenging.”

Both of these results were recorded before the August leadership spill that toppled Malcolm Turnbull as prime minister – an act which will likely further dent already fragile business sentiment.

“The uncertainty has certainly been difficult,” accountant Peter Bembrick of HLB Mann Judd told My Business in response to tax and business legislation being stuck in the federal parliament.

“But I’m not sure what people can really do about it… this is the environment we’re in, and we just have to deal with it. Unfortunately, I don’t see that situation changing any time soon.”

It comes as ASIC figures on insolvency revealed a 5.6 per cent spike year-on-year on the number of businesses entering administration (March quarter 2018 – the most recent data available).

That was driven by a 20.4 per cent surge in voluntary administrators and a rise in director-initiated winding-up orders of 7.7 per cent. 

SME confidence crash: Blip or blowout?
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