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SME businesses bearish about cash flow and sales

Announcement posted by Bibby Financial Services Australia Pty Ltd 15 May 2015

47% more concerned about economy than a year ago
Sydney, Australia, 6 May 2015: New research conducted by Bibby Financial Services in March
shows that 40% of small and medium-size enterprises (SME) are finding it more difficult to manage
their cash flow than 12 months ago. The research revealed that businesses are forced to tackle
cash flow concerns by ceasing to trade with customers who consistently pay late (25%), by
spending more time chasing invoices (23%) and by offering discounts for early payment (19%).
Also, 29% of businesses surveyed are now insured against the risk of bad debt, nearly double the
proportion in July 2014 (15%).

The March 2015 Bibby SME Cash Flow Index score of -3.3 reveals that Australian businesses are
concerned about cash flow. The Index, which is the only measure of cash flow among Australian
SME businesses, remains in negative territory and is considerably lower than it was in February
2014 (+5.3), although it has improved from its July 2014 score of -5.8. The Index is a composite
measure of current cash flow and forward projections, providing a snapshot of Australian
businesses’ cash flow expectations.
The index forms part of the Bibby Barometer, which has been conducted bi-annually since July
2011 and gauges Australian business sentiment on economic conditions, cash flow, financing and
key business challenges.

Mark Cleaver, Managing Director, Bibby Financial Services Australia and New Zealand, said:
“The latest Bibby Barometer findings are deeply concerning. SMEs are a major part of the economy
and nearly half of them (47%) are more concerned about economic conditions than they were a
year ago, while three in ten (29%) think that the Australian economy will actually contract over the
next 12 months. These views are reflected in bearish sales growth expectations, with 28%
expecting a decline in sales over the next 12 months, up from 22% in July 2014.”
“The majority of the 620 businesses surveyed in the research are medium-size businesses,
employing up to 200 people. These are significant businesses that, if confident about their
prospects, have the collective ability to boost national economic growth, employment and
productivity. Unfortunately, general pessimism about the economy and government initiatives
continues to stifle their business confidence.

“Businesses are not convinced that government policy initiatives introduced in the past 12 months
have helped. Fewer than half the businesses surveyed think that these policy initiatives have
helped them to grow (43%) or provided them with confidence in their future (49%),” Mr Cleaver said.
Less than half the businesses surveyed said they had reduced their operating costs (43%), hired
more staff (45%) or improved their access to finance (48%) as a result of government policy
initiatives.

“The Federal Government needs to take note of this. SMEs don’t feel particularly well supported
and they don't feel that government policies have worked to create better or more flexible business
conditions. Ahead of the May Federal Budget, the Government should be listening to SMEs to get a
better understanding of their needs given their importance to Australia's growth,” Mr Cleaver said.
“There are some positive signs, however, including an increase in the level of borrowing after
several years of below trend growth in business lending. Two in three businesses intend to
maintain or increase business investment over the next 12 months. Medium-size businesses are
the most likely to maintain or increase their investment (72%), while micro-businesses are the least
likely to maintain or increase their investment (56%).

“Among businesses that intend to borrow over the next 12 months, 32% say they will borrow to
fund growth, while more than one in five (22%) will borrow to fund innovation projects, with both of
these percentages rising from July 2014. This is a positive sign that some businesses, in an effort
to counter a stagnant economy, are becoming more proactive in driving growth,” Mr Cleaver said.
The Bibby Barometer involved questioning businesses employing between 1 and 199 people.

Almost half the businesses (46%) employ 20 to 199 people, while 38% employ five to 19 people
and 17% own a business that employs one to four people. Slightly more than half the businesses
surveyed are family-owned.