The confidence of Australian business owners has dropped as they struggle with expectations of flat sales growth, a poorly received federal budget and a bleak outlook for the economy.
Our SME Barometer Index, which measures business cash flow sentiment, dropped by 15 points to -10.1, a level that has not been experienced since just after the financial crisis of 2007/8. This drop in sentiment is mirrored by business owners’ increased concerns about economic conditions. While the majority believe interest rates will remain stable for the remainder of this year, many business owners believe a rise in interest rates would hit small businesses hardest, as they would negatively impact consumer spending and cash flow.
Our research, surveying 800 small and medium sized businesses, found more than a third of respondents expect sales growth to remain flat during the next 12 months. Almost a quarter believe there will be a decline in sales. Many small businesses struggle with late payments, and expect further delays in coming months. Almost half of the business owners we surveyed are finding it more difficult to manage cash flow compared to 12 months ago. The factors that have affected cash flow the most were customers making excuses for slow payments (23 per cent), declining margins (21 per cent), and long outstanding invoices (18 per cent). As a result, one in five businesses intend to spend more time chasing late invoices.
Given small- to medium-sized enterprises’ struggle to manage cash flow and their owners worry about the economic outlook, it comes as no surprise a leading challenge is to achieve work-life balance. Their concerns impact their ability to spend time away from their business and, unlike managers of large organisations, they have fewer resources available to them in an intensely competitive environment.
Business owners are adopting many methods to address these issues. One has been to invest in technology to improve productivity. They are also employing customer acquisition strategies to help them compete with larger businesses. Social media allows many businesses to cost-effectively engage with customers. Others are introducing new products or services to attract additional customers and drive future growth.
Automation is also helping to increase productivity and reduce the amount of time business owners spend at work. This is also becoming increasingly cost-effective as the price of technology falls, with mobile solutions just one example.
Almost half of small businesses plan to use the services of a financial adviser or planner to assist them to get their business in order. Developing a firm business foundation and structure is essential for a successful business, and when the basics are in place, owners can take time out and have a better work-life balance.
To help fund improvements in their business, one in five respondents intends to seek external financing such as traditional bank loans and overdrafts. A quarter plan to sacrifice profits or use inter-company loans. A number of businesses also use credit card debt to fund growth, as they find it difficult to obtain the financing they need from a bank due to trading performance or short trading history.