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WA SMEs expect economic contraction: Survey

Announcement posted by Bibby Financial Services Australia Pty Ltd 27 May 2015

WA SMEs expect economic contraction: Survey

  • 50% say cash flow is more difficult to manage
  • 53% expect sales to decline

Small and medium-size enterprises (SMEs) in Western Australia are more negative about their economic prospects than other states, with the mining downturn weighing heavily on their business confidence and stunting cash flows.

The March 2015 Bibby Barometer, a national survey of 620 business owners, found that Western Australian businesses are the most likely to believe that the economy will contract over the next 12 months. Almost half the state’s businesses (42%) believe that the economy will contract, compared to 29% nationally.

Western Australian businesses are the most likely to say that their cash flow is more difficult to manage than 12 months ago, with 50% of businesses in the state saying that cash flow has deteriorated versus 40% nationally. Western Australian businesses are also the most negative about their expectations for the future. More than one in four (26.7%) expect the time it takes to be paid to increase in the next six months and a massive 53% expect a decline in sales over the next 12 months, compared to 28% of businesses Australia-wide.

Mark Cleaver, Managing Director, Bibby Financial Services Australia and New Zealand, said: “After a long period of subdued confidence resulting in low investment intentions among SMEs nationally, the interest rate cut earlier this month and last week’s Federal Budget look set to provide a boost to SMEs and encourage innovation in the small business sector, particularly for start-ups. We welcome the tax concessions and it is pleasing to see that access to alternative forms of funding, such as crowd funding, will be improved. 

“While the support for small businesses with turnover less than $2m is welcomed, we would encourage government to extend more support to medium-size businesses. Our research has shown that medium-size businesses (employing up to 200 people) are the most likely to invest and, collectively, can make a significant impact on the Australian economy and employment rate,” said Cleaver. 

“Lower interest rates and the Budget announcements will provide some relief to Western Australian SMEs who are experiencing a downturn in economic activity due to falling commodity prices and the decline in mining operations. With the iron ore price falling to fresh lows, these fears have been compounded, hitting the state on several fronts.

“We have seen mines shut down or operations scaled back, job cutbacks and an overall decline in business activity and investment in the state. Unsurprisingly, Western Australian businesses are the most likely to be concerned about current economic conditions, with more than one in two businesses concerned about the economy (57%), compared to 47% nationally. Consequently, they are also the most likely to reduce investment in their businesses,” Mr Cleaver said. 

To counter the economic headwinds they are facing, Western Australian businesses are among the most likely to say they intend to access new customer segments and to embark on product, service or process innovation in the coming 12 months; one in three businesses is planning such initiatives, compared to around one in four nationally. Businesses in the state are also the most likely to have bad debt insurance, with over a third (37%) looking to reduce risk by taking out insurance against bad debts.

When it comes to running a business, the most common challenges cited nationally are rising expenses (36%), achieving a good work-life balance, increased competition and managing cash flow (all 29%). However, in Western Australian businesses are even more likely to highlight these challenges, particularly rising expenses (40%), achieving a good work-life balance (38%), time management and increased competition (both 32%).

The March 2015 Bibby SME Cash Flow Index score of -3.3 reveals that Australian businesses nationally are concerned about cash flow. The Index remains in negative territory and is considerably lower than it was in February 2014 (+5.3), although it has improved since July 2014 (-5.8).

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% employ one to four people. Slightly more than half the businesses surveyed are family-owned.

The Bibby Barometer survey has been conducted bi-annually since July 2011 to gauge the temperature of Australian business sentiment on economic conditions, cash flow, financing and key business challenges. The Bibby Cash Flow Index, which forms part of the Bibby Barometer, is a composite measure of current cash flow and forward projections providing a snapshot of Australian businesses’ cash flow expectations.