Majority of small business owners not seeking expert advice

Many small businesses appear to be going it alone, failing to draw on valuable external advice despite the unprecedented challenge facing the SME sector.

Fewer than one in five small businesses (17.7%) seek expert advice for long-term strategic planning.

Not even one in seven (13.7%) seek M&A advice and only 10% get expert assistance with risk management.

Overwhelmingly, when small businesses turn to trusted advisors it is for tax and compliance advice – this was nominated by 93.2% of respondents.

Asset acquisition and disposals (34.1%) and succession planning (26.8%) are also identified as key areas of interest where SMEs look beyond their own team for guidance.

Almost one in three small businesses (30.4%) turn to external advisors such as accountants, bookkeepers and brokers for help separating their personal and business assets.

This is arguably such a dominant issue due to SME owners’ over-reliance on using personal property as security to fund their business.

Recent joint research from accounting platform Xero and market research firm Forrester shows small businesses represent more than 90% of all global businesses, yet only 26% of them consult trusted advisors.

Their findings indicate that those who thrived throughout the pandemic were the ones leaning on expert advice. This aligns with previous SME Growth Index findings.

Results this round indicate small business owners have a strong desire to get back to “business as usual” yet in many cases they are uncertain about how to achieve such an outcome.

With so many small businesses feeling uncertain, and two-thirds of SMEs seeking transformation (by restructuring), such undertakings should be supported by advice from experts and fuelled by some investment in the business.

Long-term strategic planning remains a low priority for many SMEs, particularly those who say they are in a declining or static business phase. East & Partners found that this group of static or declining SMEs is characterised by a higher level of primary bank funding (22.7%) relative to growth SMEs (only 15.8% of whom use primary bank to fund growth), indicating a pressing need for these businesses to “shop around” and explore other more appropriate business funding solutions.

Relieved, exasperated, unsupported – how business owners are feeling

Confidence is crucial for ensuring the small business sector successfully recovers from the pandemic-led recession.

Yet in the March 2021 SME Growth Index small business owners display a distinctly cautious tone.

When asked how they felt about running their business now, compared to their feelings in early 2020 before the pandemic hit Australian shores, SMEs are slightly more likely to express negative sentiments than positive ones.

Overall, 43.9% of small businesses say they are more positive, relieved or enthusiastic about 2021, while 55.3% are less positive, exasperated, uncertain or feel they are lacking support.

The sentiment breakdown was:

  • 8% are more positive now about their business
  • 4% are relieved
  • 2% are exasperated
  • 4% are less positive
  • 2% are uncertain
  • 6% feel they didn’t get enough support
  • only 6.7% feel enthusiastic

These sentiments show SMEs are still cautious about business survival, which aligns with the fact that their intentions to close or sell (if conditions don’t improve) are higher now than in H2 2020.

Smaller the business, bigger the headache?

Generally the findings this round show the larger the business the higher the level of positivity about business outlook.

It is the smaller end of the small business sector that seems to be hurting the most.

Revenue uncertainty is more marked at the smaller end of the SME sector, with $1m-$5m revenue SMEs across all states feeling the brunt from the pandemic more so than their $5m-$20m counterparts.

As well as showing greater uncertainty about revenue growth, smaller SMEs are more likely than large SMEs to:

  • have been declined from lending product
  • experienced suppliers reducing payment terms
  • faced difficulty meeting tax payments
  • be looking to close or sell their business if current conditions don’t improve

Three times as many small SMEs as large ones had to seek new funding because they couldn’t rely on equity in their home to fund their business.

Larger SMEs are more likely than their smaller counterparts to have experienced cash flow issues in 2020 but they are also more likely to have introduced new funding options to deal with these issues.

These larger SMEs are also more likely than small SMEs to:

  • be looking to restructure
  • have a plan for recovery
  • seek to enter new markets
  • work with trusted advisors

Whatever the size of the small business, there are many good reasons for either the business owner, or their trusted accountant, bookkeeper, broker or business advisor, to be initiating conversations that help plot a road to post-pandemic success.