Top factors to help SMEs rebound

SMEs were asked to name the top three factors they think are required in order for the small business sector to rebound from the COVID-19 recession.

Having open borders was the top factor, by a significant margin.

Almost two-thirds of SMEs (63.8%) felt this way, and on this issue there was minimal variance exhibited by state, business size or industry sector.

The second most popular factor to help SMEs rebound was for the Federal Government to legislate 30-day payment terms. This initiative, named by 46.4% of small businesses, has been championed throughout 2020 by ASBFEO’s Kate Carnell.

While the Federal Government’s Payment Times Reporting Bill 2020 has passed both houses of parliament and requires large businesses (> $100 million) to submit a biannual report on their small-business payment terms and practices, the Small Business Ombudsman has stated she would like to see this taken further.

The Ombudsman has called for legislation requiring SMEs to be paid in 30 days as “the only way to drive meaningful cultural change in business payment performance across the economy”, and SME Growth Index results confirm this measure would be popular with the small business sector.

Small business sector eyes insolvency reform

SMEs had strong views on how to recover from the recession, with many respondents writing in their own suggestions rather than relying on survey response options. The most popular write-in was:

  • 2% of SMEs independently nominated that extending insolvency relief laws would be a key element for steering the sector through an as yet undefined COVID recovery period.

How the Federal Government legislates on insolvency will be crucial. The Reserve Bank has warned of a wave of business failures once temporary insolvency relief measures end (at the time of writing, set for December 31 2020). These relief measures, such as increasing the threshold at which creditors can instigate bankruptcy proceedings and protecting directors from personal liability for trading while insolvent, were set to expire in September. They have already been extended to the end of 2020 and the government is considering further reforms that would allow businesses with liabilities under $1 million to keep trading while they develop a debt restructuring plan within 20 business days.

One in four SMEs (25.1%) expressed – of their own accord – firm support for a more federal approach to the pandemic, advocating for reduced power of the states. This is primarily a call for open borders.

Almost one in four small businesses (22.4%) also want greater clarity from the government on stimulus timings; 15.3% want easier access to government spending or contracts and procurement processes, an area recently targeted for pandemic recovery action by the NSW Government.

A voucher system allowing small businesses to seek professional business advice, an initiative suggested by ASBFEO and the major accounting bodies, was named a top recovery factor by just 3.2% of respondents.

Key challenges and top three positives for 2021

The top three hurdles SMEs feel they must overcome in 2021 are servicing excessive debt levels (22.1%), securing or increasing their customer base (16.1%) and diversifying their funding base/finding new sources of funding (16%).

Avoiding insolvency was named as the greatest challenge by 11%;  7.7% listed retaining staff and current headcount; 7.5% will focus on removing unnecessary costs, especially ingrained fixed costs.

Around one in 20 are concerned that continued uncertainty around border closures will be their main challenge.

When asked what they are most positive about for 2021, the most common response was getting “back in the black” (24.2%), coupled with the corresponding factor of reducing debt levels (20.7% wrote in this response).

Almost one in five small businesses (17%) plan to relocate or enter new domestic markets.

One in ten are most positive about retraining or upskilling staff and a similar number (8.8%) pointed to choosing to ‘right size’ and sell non-core assets in order to be ‘leaner and meaner’ post-COVID.

As to innovation and expansion, 6.4% of SMEs are most positive about their plans to release new products and services, 5.9% about entering new international markets and 4.7% about making strategic changes to create a new path for their business.

When the data was cut by business age, it was revealed newer businesses are more likely to be grappling with staff issues and scaling up, to be planning to improve productivity and looking to do more with less.

Younger businesses (under 12.5 years) were much more likely to express positivity than their older SME counterparts about entering new domestic or international markets and releasing new products or services. This may be due to a view that if they can ride out 2020 they can survive anything, whereas older businesses may be more conservative and keeping their focus on dropping debt.

Established SMEs seem to be shouldering significant debt burden and were more looking forward to reducing debt levels (24%, compared to 16.4% of younger businesses).

A response variance to highlight is that established SMEs were much more likely to have strategic planning in place.

This, along with the result showing SMEs either have made or are considering a change in direction about their pre-pandemic funding arrangements, highlights the importance of small businesses seeking qualified, expert advice. The results indicate that SMEs need to be making hard decisions about business structure, strategy and funding for 2021 and beyond.