Our Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia’s small to medium sized business sectors showing cashflow issues that many businesses face today, below is one of six key insights found in our September 2019 report:

Positive growth sentiment continues to build, with a two-and-a-half year high in SMEs expecting revenue to increase – but there is a marked city-country divide.

More than half Australia’s SMEs (54.6%) forecast positive growth for the second half of 2019, with an average revenue increase of 5.1%.

One in fie are flaging revenue decline, at an average of -5.7%. A quarter of businesses forecast no change in revenue.

When the whole SME market (whether growing, declining or stable) is taken into account, the forecast increase in revenue averaged 2.7%, stronger than at any time since March 2016.

While this figue is well short of the 4.9% forecast revenue growth recorded in 2014, it is more than double that forecast in March 2019 (1.8%) and September 2018 (1.1%).

A tale of two economies: metro versus regional

SMEs in rural and regional areas are doing it tougher than their metropolitan counterparts.

Only 47.3% of regional business owners expect positive revenue growth for the remainder of 2019, at an average of 3.1%. More than a quarter (27%) expect revenue to decline, by an average of 6.8%.

The metropolitan SME sector is more buoyant. 57.7% of metropolitan enterprises expect positive growth, forecasting an average increase of 5.8%. Just under one in fie (18.1%) expect revenue to decline, by 5% on average.

SME Growth Index trend analysis indicates that, consistently since 2014,

SMEs in regional areas across Australia have been less positive about revenue growth than their metropolitan counterparts.

Since 2014, there has been a 10 percentage point fall in regional SMEs forecasting positive growth (from 58.3% to 47.3%) and only a six percentage point fall for metropolitan SMEs (from 64.4% to 57.7%).

SME sentiment defies broader outlook

The proportion of SMEs who identify as being in a consolidating or contracting phase of business has fallen below 20% for the first time since the first round of the Index in 2014, with 9.8% saying they are consolidating and 9.7% saying they are contracting.

This is an improvement from 18 months ago, when around a quarter of SMEs were consolidating or contracting (12.2% and 12.3% respectively).

Four in 10 SMEs identify as being in a growth phase. Almost a third say their business is stable.

While recorded SME revenue growth sentiment is at its highest since early 2016, this positive outlook is set against the backdrop of an Australian economy that broadly continues to struggle with sub optimal growth.

Gross Domestic Product (GDP) expanded 1.7% year-on-year in Q1 2019, the slowest pace since the immediate aftermath of the 2008 Global Financial Crisis. The domestic retail market remains sluggish and capital expenditure subdued.

Real private consumption slowed to its lowest level since Q2 2013 at 1.8% year-on-year, affected by a protracted period of low-income growth and declining housing prices especially in Melbourne and Sydney. Concern around economic conditions may be masked by tax cuts and lower interest rates propping up consumer confidence. These two moods are reflected in the Index, revenue expectation extremes expanding this round to – +7.7% for positive growth and –12.8% for negative growth.

East & Partners also note that over the five-year life of the Index, the average number of full-time employees of SME respondents has fallen significantly to 68 FTE, down from 88 in 2014.

An emerging trend in recent rounds is the rising number of declining growth / no change SMEs who have plans to invest in business growth. One in five declining growth / no change SMEs plan to grow but don’t know how they will fund their growth – whereas only 5.8% of growth SMEs have yet to decide on the debt / equity mix they will use to fund their new growth.

In an effort to inform business owners about options beyond their own equity, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and Scottish Pacific have created a Business Funding Guide to broaden the SME sector’s knowledge about business funding options.