October 9, 2017      3 min read

Small and Medium Sized Enterprises (SMEs) are ubiquitous in Australia, and fortunately, recent research shows that 49 percent of SME owners reported actual growth over the last 12 months. 2015 also saw similar growth for SMEs, as did 2014. However, 20 percent showed a decline in revenue over the past year.

Some have suggested that SMEs are in fact a significant driving force for the Australian economy. For example, Treasurer Scott Morrison suggests that SME’s “are the hope of the side.” In this article, we lay out the key characteristics and trends of SMEs in Australia in recent times.

Strong Business Confidence

Recent research from the Sensis Business Index for the December quarter of 2016 has found that SMEs were more confident in this three-month period than they have been in six and a half years. Likewise, National Australia Bank’s Quarterly SME Survey for the same period revealed a business confidence rating of 5, comparably higher than its usual average ranking of 2. As Westpac Senior Economist Matthew Hassan states, “Trading conditions have clearly improved on a year ago.”

The Commonwealth Bank Small Business Study in October last year surveyed 851 businesses, including small businesses (under $1m), medium businesses ($1m – $50m) and large businesses ($50m+). The results found that the smallest businesses fared the best, conveying comparably higher levels of confidence than the larger businesses.

For example, the study found that almost one in four of the SMEs surveyed are expecting double-digit growth over the next six months, and more than half of these believe they are well-positioned for growth.

As CBA’s General Manager of Small Business suggests, “Our findings indicate that the majority of small business owners have a good handle on cost management, contributing to their overall sense of confidence about the potential for business growth over the next six months.”

Low Consumer Confidence

Despite the positive results for business confidence, consumer confidence is comparably less impressive. For example, in a recent Dun & Bradstreet survey, the results illustrated that 42 per cent of organisations are concerned with Australian consumer confidence for 2017.

This low consumer confidence has translated into decreasing sales, since consumer demand has become, as Hassan notes, “patchy.” A lack of improvements in the state of sales can be problematic for Australian SMEs, and it has the potential to become a severe business liability.

Aside from directly inhibiting profitability, a lack of sales can be a significant factor ​affecting​ ​inventory management. Reduced sales volumes, especially if unanticipated, may result in the accumulation of obsolete stock, and this can be a damaging factor​ ​affecting​ ​inventory management.

Excess stock may be damaging to the firm if management cannot find a way to sell it off and offset production costs. Therefore, reduced sales can really derail your capacity to successfully manage stock, and can be a detrimental factor​ ​affecting​ ​inventory management if it is not resolved appropriately.

Despite this, more recent research this year suggests that this trend may be beginning to change; in a recent survey, we can see consumer confidence lifting slightly.

Problems with Cash Flow

Further, recent research also illustrates that SMEs in Australia are struggling with cash flow problems. For example, Scottish Pacific’s SME Growth Index for March 2017 found that 90 percent of SMEs are unhappy with the state of their cash flow.

The same research also found that SMEs attributed problems with growth to credit conditions and credit availability, creating barriers to capitalising on market opportunities and limiting expansion plans.

Ultimately, the state of SMEs in Australia in recent times is such that they are experiencing both positive and negative trends. Business confidence is comparably high, yet consumer confidence is low and cash flow is still a niggling problem.

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