Rising recession fears dampen SME revenue predictions
Four in 10 small businesses say their business is now worse off than before the pandemic despite relatively strong financial performance in May, according to a recent survey.
Just over half of small- to medium-sized enterprises (SMEs) reported a profit in May despite ongoing concerns about rising interest rates and costs, according to the SME Sentiment Tracker report by ACA Research.
This was an increase from May last year when only 48 per cent of businesses generated a profit.
Despite the strong financial data for last month, 39 per cent of SMEs claim their business is now worse off than it was before the pandemic.
“This is more evident amongst SMEs operating in the retail, distribution and hospitality sectors,” the SME Sentiment Tracker report stated.
Businesses are most concerned about the impact of rising costs, interest rates and wages.
One third of SMEs are expecting wage rises over the next three months which has been heightened by the recent increase in the minimum wage.
The survey also found that a smaller proportion of SMEs have been able to pass on increased input costs at 65 per cent, suggesting that customers are unwilling to pay more and that competitors are dropping their prices.
“While this is good for reducing inflation, SME profits will also decline,” the report stated.
The survey revealed that 57 per cent of businesses are expecting weaker conditions over the next three months while four in ten businesses fear they will not be able to withstand a recession over the next 12 months.
Short term revenue predictions are declining with only 23 per cent of businesses expecting revenues to increase over the next four weeks. This was down from 32 per cent back in March.
Staffing shortages easing
Recruitment activity also continues to slow with only 18 per cent looking to fill roles compared to 26 per cent in March. Hospitality continues to be the most active, but most industry sectors are pulling back on their search for staff.
The survey found that only one in five SMEs are now operating with less staff than before the pandemic.
“This is the lowest level reported since the inception of the research,” the survey report stated.
With recruitment activity slowing the ability to find staff with the right skills and wage demands is becoming easier.
Only 53 per cent of businesses reported that it was more difficult to fill roles compared to before the COVID-19 pandemic. This was a considerable drop from 77 per cent in April.
SMEs currently in a two-speed economy
Non-bank business lender ScotPac said that tough economic conditions and the end of COVID-19 relief measures in the past 12 months was taking its toll on cash flow dependent SMEs.
Revenue predictions were slightly more positive among the businesses surveyed in ScotPac’s recent SME Growth Index, with 56 per cent still predicting positive revenue over the next six months.
Around a third of SMEs are predicting their revenue will contract in the next six months, however, by an average of 8.5 per cent. This is a record high figure for ScotPac’s SME Growth Index.
“The six-month growth projection findings are a clear indicator of the two-speed economy that currently exists for Australian SMEs,” said ScotPac.
“Whatever their stage of growth, all SMEs are operating in an environment of rising costs and changing consumer behaviour, which often requires a change in approach.”
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