The Scottish Pacific SME Growth Index for September 2017 looks at growth expectations and key concerns of Australia’s SME owners – businesses with an annual turnover of $1-20 million.

Produced in partnership with East & Partners, more than 1200 small to medium enterprise leaders were polled across Australia to highlight the key areas of concern faced by SMEs today.

These SMEs employ more than two-thirds of Australia’s workforce yet our latest Index shows growth stalling and SMEs are saying staffing regulations and excessive red tape are hampering their productivity.

Small business owners are telling us they don’t have the resources to deal with difficult staff issues and this makes them hesitant to employ new staff.

The findings highlight the sector’s revenue expectations and key concerns, and if SMEs had a chance to be PM for a day – what would they change to improve their business. For a full copy of the Growth Index, download here.

More SMEs are turning away from the banks to fund business growth

Small businesses are increasingly turning to non-bank providers – when SMEs need money they usually need it fast, and they are busy people so they don’t want to go through hours or days of red tape. The Scottish Pacific SME Growth Index findings show that:

  • The gap is closing between banks and non-banks. SMEs are having a shorter relationship with their bank – churn intent / multi-banking intent is rising among SMEs
  • The number of Australian SMEs who plan to fund their growth with their bank is falling (from 38% to just over a quarter, 27%, since 2014)
  • Popularity of non-banks like Scottish Pacific has grown (from 10% up to 22%)
  • Use of own funds dipped again this round (89%) yet is still a dominant source for investment

The trend is showing they are more receptive to new or different types of funding, and that’s where the non-bank sector has stepped up to make it easier for them.

Top priority for SMEs if they were “PM for a day”:

If SMEs were given the chance to be PM for a day, the key concerns SME leaders would be wanting to change include:

  • Streamline Business Activity Statement reporting (24%)
  • Change the Fair Work Act (22%)
  • Reduce company tax (21%)
  • Lighten compliance (10%)
  • Remove payroll tax (8%)

Since SMEs are vital in the growth of the economy, governments need to recognise this – if the sector is to continue to drive employment and economic growth, then small business pain points around dealing with staff issues, the red tape and reporting burden that comes with employing staff, must be addressed.

Growth conditions for SMEs

Revenue uncertainty prevails, yet SMEs display resilience:

  • 48% predict revenues to improve
  • 28% predict revenues to remain unchanged
  • 23% expect a revenue decline

SMEs forecast revenues to improve by 0.8% on average (down from 4.9% in September 2014). This 0.8% average is based on declining SMEs expecting an average 6.1% revenue drop, and growth SMEs expecting an average 4.1% growth. The range of average growth or decline forecasts is widening – reflecting the difficulty businesses face in setting future investment plans. This is not to say that SMEs aspirations to grow are slowing down, businesses in their growth stage are still investing in the following areas:

New product / service plans

  • 56% of growth SMEs are targeting new services development and the number of growth SMEs planning to release new products is at a high (37%) since the Index began in 2014. Only one in five growth SMEs are planning both new products and services
  • 46% of the whole SME market has no plans to release new products or services, rising sharply from 31% in 2014

Mergers and Acquisitions

  • The number of SMEs intent on merging with another business has more doubled since 2014 from 6% to 16%
  • Among growth SMEs, the number intending to merge has grown from 5% to 14%

Domestic and overseas expansion into new markets

  • The intent to export is increasing among growth SMEs – export intent grew over the past three years from 5.6% to 11.6% of small businesses looking to move into overseas markets
  • One in five growth SMEs are looking to move into new domestic markets

SMEs barriers to growth

Only 48% of SMEs were predicting revenue to rise through to Feb 2018, forecasting average of 4% growth. 23% were expecting negative growth and 28% said they would be stable or consolidating.

The major barriers for the whole SME sector include:

  • High or multiple taxes (75%)
  • Conditions of credit (69%)
  • Availability of credit (64%)

And for growth SMEs, barriers include:

  • Red tape (65%)
  • Cashflow issues (60%)

One in four SMEs impacted by house prices – SME Growth Index respondents said house pricing had:

  • Reduced demand for their products/services (11%)
  • Made their business investments riskier (7%)

With SMEs increasing confidence in non-bank lending and the number of growth SMEs looking to expand since the SME Growth Index started tracking sentiment in 2014, it is a great time for us as non-banks to offer our services to them and support continuous growth in the SME sector.