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 three of the six key insights found in our March 2018 report:

Differentiating a growth SME

Some clear patterns of SME behaviour emerge when you segment the SME Growth Index responses given by growth and non-growth businesses.

The following characteristics differentiate common strategic financial and business decisions undertaken by growth and non-growth SME owners.

A typical growth SME is:

  • Either already using or considering the use of non-bank funding options (5 times more likely to than non-growth SMEs)
  • More likely to consider cashflow and red tape as a business growth barrier
  • Less likely to rely on credit cards to fund their business
  • More likely to pro-actively make arrangements with the ATO to handle tax payments
  • More likely to be planning new products, new services or both

A typical SME with declining or stable revenue is:

  • More likely to use merchant cash advances to provide working capital and personal credit cards to ease cashflow
  • More likely to consider their growth is being blocked by taxes, and credit availability/conditions
  • More likely to offer discounts for early payment
  • More likely to use a debt collection company to recover debts
  • More likely to reduce their overall customer numbers and overall sales to manage working capital
  • Spending more time than growth businesses on chasing invoices
  • Less likely to be using or considering non-bank solutions

For growth SMEs using alternative lending options, debtor finance is by far the most popular working capital choice.

The alternative working capital options used by SME respondents in 2017 were: debtor finance (used by 77%), merchant cash advances (23%), P2P lending (10%), crowd funding (9%) and other online lending (5%).

Given the prolific media profiling of the growing fintech market, these results may seem surprising. However, the Index polls SMEs with a turnover ranging from $1 million to $20 million and it is likely that most of the current fintech take-up is from start-ups and small businesses coming in under the $1 million revenue mark.

Those SMEs that are growing are growing strongly (which is to be expected, given the low interest rate environment). Amongst growth SMEs, 36% plan to introduce new products in 2018, 56% are planning new services and 6% are planning both.

The Index indicates that declining businesses are feeling the heat. One in four SMEs forecast negative growth, with the average revenue drop of 6.4% being the highest average negative growth forecast since the Index began in 2014.

There is certainly scope for static or declining revenue growth small businesses to look more broadly at ways to finance their enterprises that would contribute to growth.