Australian SMEs are concerned about the impending recession, with business confidence plummeting to new lows, according to the ‘Canary in the Coal Mine’ report released today by Prushka Fast Debt Recovery.
The bi-annual survey of nearly 500 Australian small business operators revealed only 22 per cent of SMEs are confident in the state of their business right now, and fewer than a third are planning for growth over the coming 12 months. More than two-thirds are planning to consolidate or cut costs.
In response to COVID-19, 66 per cent of SMEs are concerned that Australia will experience a recession, and 62 per cent believe the severity of this will be the worst Australia experienced in the past 20 years.
Roger Mendelson, CEO of Prushka, said SMEs should be prepared to continue operating in an uncertain and volatile environment for some time, with recent government announcements confirming Australia will enter recession at the end of June, the first in almost three decades.
“COVID-19 has impacted the health of the global economy and Australian SMEs are feeling the pressure on the bottom line. Over the past 12 months, business confidence has halved, and many SMEs are just trying to stay afloat,” Mr Mendelson said.
“Until now, businesses have had to make tough decisions to survive and, as restrictions slowly begin to ease, there will be new challenges to overcome. Now more than ever businesses should be focused on best and worst case scenario planning, to ensure they have a framework in place that allows their business to operate no matter the circumstances.”
More than half of SMEs said the biggest negative impact on their business in the past 12 months had been COVID-19, followed by the state of the economy and reduced consumer spending. When asked what their biggest concerns were over the coming 12 months, SMEs noted profitability, managing cash flow and growing their customer base as major concerns.
To mitigate any potential issues with cash flow, 56 per cent of SMEs said they have a cash buffer in place, however businesses are continuing to rely on personal funds as a temporary measure, a trend which has risen by 16 per cent over the past 18 months.
“It is concerning that SMEs are still continuing to rely on their own funds in times of strife, as this can place pressure on families. Forecasting a business’ cash flow ahead of time can help you plan any expenses around your projected cash inflows and ensure you are adhering to your credit collection processes,” said Mr Mendelson.
Positively, businesses are continuing to exercise tight credit assessment criteria with nearly two thirds of businesses spending less than 5 hours a month chasing unpaid debts. This figure has increased by 20 per cent over the past 18 months.
Even though SMEs are spending less time chasing payments, 47 per cent of businesses are finding it harder to collect debt, and 53 per cent believe it is harder for debtors to repay debts compared to this time last year.
“While it’s a good sign that SMEs are spending less time chasing debts, it’s still concerning they are finding it hard to collect.
“For SMEs to survive in this new normal, they must be adaptable, flexible, and able to act on decisions quickly. Strong cash flow processes are more important than ever for survival,” said Mr Mendelson.
For further insights, read Prushka’s Canary in the Coal Mine report here.
Note: Report is based on 483 respondents to the survey in March/April 2020.