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.
