Australia’s smaller businesses remain remarkably positive even though they admit to struggling, with a vast survey of the sector showing trading conditions collapsed 14.4% over the second quarter this year.
The Westpac-Melbourne Institute SME index, over the three months to June, fell from 97 to 83 for Q2 2016. Falling profitability was a significant driving force.
The survey, which aims to provide information about the economic health of Australian small and medium enterprises, also showed a particularly weak read on the current conditions index, which sits at just 70.9.
Julie Rynski, Westpac’s General Manager of SME, said: “As SMEs are approaching the end of financial year, the findings of this quarter’s survey show business activity, sales, profits and employment levels have declined. The vast majority of surveyed SMEs also reported a rise in overheads and costs.”
In particular, profitability seems to be weighing on current conditions, with a net balance of -15.6%.
But even with this backdrop, Australia’s SMEs remain relatively upbeat.
“The reading of the Future Conditions Index is less negative but at 95.1 is still under the neutral mark of 100,” Westpac said.
Westpac’s Rynski said small business owners were the most pessimistic about the future compared to companies of other sizes.
“This time of year can bring a number of business pressures, yet SMEs are less negative in their assessment of future conditions than in their assessment of current conditions. In particular, female business owners and managers are more confident than their male counterparts about business conditions in the next three months, at 106.6 compared to 89.7 for male counterparts” she said.
Westpac commissioned a number of additional questions from a panel of 200 SME customers for Business Insider exclusively.
The aim of these questions was to try to gauge how businesses see their recent level of growth both against the previous 5 years and also the past 12 months.
The panel reported that while 29 per cent of Westpac’s SME customers believe their level of business activity has been stronger than experienced in the period between 2011 and 2015, 31% reported it was weaker. 40% reported it as being the same.
A similar number of businesses believe that the first four months of 2016 were stronger than that of 2015. However 32% said business was weaker over the period and 39 percent said it was about the same.
Interestingly the drivers of those who think their business activity is stronger appear to be using a sales and technology focus with those firms reporting, technology, expanded customer base, new referrals and new hires were the key drivers of that strength.
On the other side of the coin those reporting weaker activity appear to be reflecting the atmospherics of the overall Australian economy. The key reported drivers of that weakness were a weak economy, consumer caution, a slow season and a lack of confidence.
That’s an important and clear distinction which suggests that SME’s with a clear vision, and executable plan, and a focus on customers and sales can continue to thrive in the economy even with margin pressure and increased competition.