The March 2019 Scottish Pacific SME Growth Index Report made many interesting discoveries about the current state of Australian businesses. While some findings were discouraging like increased difficulty accessing funding due to property downturns and the Royal Commission, others were quite encouraging.

One in particular was the fact that revenue growth was rising — a positive sign for Australian SMEs and business owners.

In this post, we’ll take an in-depth look at this phenomenon and explain why fewer SMEs are in trouble. We’ll also discuss some common cash flow strategies business owners are using to keep up with growth, as well as some other notable trends.

 

GROWTH IS EXPECTED FOR MANY COMPANIES

Things are looking good for most business owners, with growth being forecasted for many SMEs. “More than 53% say they’ll grow in the first half of 2019, up from 51% six months ago. This is the most positive result recorded in the SME Growth Index since the first half of 2016.”

More specifically, “Growth businesses are forecasting an average 4.9% revenue rise (up from 4.5%).

This is a great sign considering the obstacles many SMEs have recently faced when it comes to obtaining financing. Despite their difficulties, many business owners are managing to keep their companies is good financial health and are moving in a positive direction.

Many experts have the sense that Australia’s more vulnerable businesses that may have been unstable a year or two ago ago have turned a corner. For those who were struggling, the situation has improved and they’re now in a more favorable position. As long as there are no major external factors to disrupt the economy, most SMEs should be in good shape for the foreseeable future.

 

REVENUE IS CONTRACTING FOR FEWER COMPANIES

Furthermore, there’s a downward trend of revenue contracting. Only 8.5% of SMEs expect their revenue to contract in 2019 with an average of 5.5%. But considering the maximum revenue drop is only 12.2% — 1.5% lower than the previous round — things are looking up for Australian businesses as a whole.

It’s important to note that In 2018, more than 12% of business owners were experiencing diminishing profits. But in March 2019, that number fell by 3.5%, marking a record jump in the number of SMEs who were shifting from a “contracting” to “stable” phase.

And when you combine growth and non-growth SMEs, “total average revenue projections have more than doubled year-on-year since 2016 — from 0.7% to the current 1.8%.” So when you look at the big picture, it’s clear that Australian businesses are trending in the right direction.

 

CASH FLOW STRATEGIES

Although desirable and critical to the long-term success of a business, growth can also present cash flow issues. To keep up with consumer demand and stay on track, SMEs need a viable means of obtaining steady cash flow.

While 11% of businesses had no formal strategy as to how they would invest in business growth, the vast majority did have a game plan. So how are business owners generating the capital they need to accommodate growth?

Here’s how it breaks down:

• Personal finance – 69%
• Cash flow forecasts – 63%
• Discount for early payments – 56%
• Invoice, trade or important finance – 47%
• Making arrangements with the ATO – 20%
• Increasing overdraft – 13%

It’s clear that many companies are feeling the pressure to grow, given that 69% of business owners used their own credit cards to increase cash flow in March 2019, which was up from just over 66.5% a year earlier.

Offering discounts for early payments has risen considerably and jumped from 50% the previous year to 56% in 2019. This means that many SMEs are willing to come down on their pricing slightly in exchange for quicker payment terms.

Also, the number of business owners making arrangements with the ATO has noticeably risen. While only 16% did this in 2018, one in five did so in 2019.

In terms of cash flow strategies that have remained the same, these include taking out or increasing an overdraft, obtaining funding online and running credit checks. The one strategy that’s declined from 2018 to 2019 was debt collection, with just over 4% of business owners utilising it this year.

Beyond that, there are a few other noteworthy trends that deserve mentioning.

 

THE AVERAGE NUMBER OF FULL-TIME EMPLOYEES HAS DECREASED

There are a fewer number of full-time employees in Australia. According to the Index, “The average SME respondent’s full-time employee headcount continues to downtrend, falling from 71 in the last round to 69 now — it was 88 in the first round in September 2014.”

This phenomenon is confirmed by The Reserve Bank of Australia, who says there’s been a growing trend of part-time employment throughout much of the country. They also mention that Australia has one of the highest shares of part-time employment among the Organisation for Economic Co-operation and Development (OECD) countries.

Trimming back the number of full-time employees has created more flexibility in the workplace so SMEs can stay nimble with fluctuations in demand and keep labour costs down — both of which can accelerate growth.

 

A SMALL NUMBER OF SMES ARE INTENTIONALLY REDUCING SALES

1 in 10 SMEs are choosing to lower their overall sales to minimise cash flow issues. For those who can’t come up with a viable means of boosting cash flow, a small percentage are electing to intentionally slow their growth to avoid growing pains.

While this probably isn’t the ideal route for most business owners, it definitely makes sense in certain situations. With that said, it’s important for SMEs to explore all of their options, which brings us to our final point.

 

DEBTOR FINANCE IS BECOMING A MORE POPULAR OPTION

One issue that’s a growth deterrent to business growth is slow paying clients. Australian businesses ended up spending more time hunting down invoices  this year — a cash flow strategy for 14.5% of businesses in 2019 versus just 12% in 2018.

Research from software company Xero found, 62% of SMEs dealt with late or unpaid invoices within the last year. This has a trickle-down effect that places business owners in a tough position where many have difficulty paying their own suppliers as well as their employees.

As a result, there’s a growing interest in debtor finance and invoice finance, where SMEs obtain a line of credit by using outstanding invoices as collateral. In fact, it went from being used by only 7.5% of companies in 2018 to 11% in 2019.

With most invoices approved within 24 hours and business owners able to receive up to 85% of the value of their invoices, it’s proven to be an effective way to boost cash flow and quickly gain access to capital that would otherwise be tied up for several weeks or even months.

 

A PROMISING TIME FOR AUSTRALIAN BUSINESSES

Data from the March 2019 Scottish Pacific SME Growth Index Report shows that revenue growth is rising for many Australian businesses. The current economic climate looks promising, and SMEs are in a position to thrive.

However, it’s vital that business owners stay on top of growth and develop a viable strategy for obtaining necessary cash flow. For more information on this, please contact Scottish Pacific today.

Do you feel you have enough cash flow to keep up with the current growth of your business? Click here to have us touch base or call today on 1300 207 345