Small and medium businesses across Australia continue to show signs of strong business health, a now two-year trend, with SMEs predicting growth over the next 12 months, according to a new report from Prushka Fast Debt Recovery.
Prushka’s Canary in the Coal Mine survey of 768 SME businesses from across Australia found more than 67 per cent of SMEs rated their business confidence as high, and more than 50 per cent are planning for growth in 2018, compared to only 19.5 per cent who reported they will have to cut costs in the next 12 months.
SMEs are also showing strong signs of financial health as they continue to manage their own cash flow better, with only 18 per cent relying on bank loans if cash flow problems arise, slightly down from six months ago.
Roger Mendelson, CEO of Prushka, said the positive business outlook was reflective of the current strong environment for businesses.
“The ongoing steady business conditions is a trend we have seen over the past year and is an indication of SMEs enduring confidence. This is supported by official liquidation figures which have been at historical lows over the last year,” said Mr Mendelson.
Most SMEs are also self-sufficient when it comes to financial emergencies with more than 43 per cent of respondents saying they have a cash buffer in place if needed.
Mendelson said there is more than one reason behind the rise in SMEs self-reliance.
“The banks are becoming increasingly less relevant to the SME sector and our clients have experienced the banks being increasingly more reluctant to provide loans, unless secured by property,” he said.
“This leaves SMEs to make their own arrangements to ensure they can financially cover the hard times on their own which is a good sign for an SMEs ongoing success.”
Average debt levels for SMEs have also remained stable over the last six months with 70 per cent citing an average value of debts of less than $2,000. Further, 58 per cent of SMEs said their attitudes toward extending credit have remained largely unchanged in the last 12 months.
More than half of respondents (55 per cent) spend less than five hours trying to recover unpaid debts, a 10 per cent increase in the last six months and, while 55 per cent of SMEs feel their ability to collect debts has remained largely unchanged in the past 12 months, they are actually spending less time recovering unpaid debts.
In a positive sign, businesses continue to view properly drawn trading terms and clearly defined terms for payment as an important contributor to cash flow, with 70 per cent setting strict payment terms of 30 days or less when collecting debts.
“SMEs usually focus so much on running their business and have little time, nor interest, in back-end administration functions. Now is the time for SMEs to focus on improving their credit processes while times are good, not when business conditions deteriorate, because by then it may then be too late,” Mendelson said.
The construction industry has emerged as the industry most likely to delay payment to SMEs, with 23 per cent of respondents citing building and construction businesses as taking the longest to repay debts, a 4.9 per cent increase in the last six months.
“Our survey results confirm the anecdotal view from clients that there are early warning signs of trouble in the building and construction sector, a worrying early indicator for the sector. This often leads to a chain reaction with the failure of one developer impacting many related suppliers and contractors.”