SMEs ponder their future if business conditions don’t significantly improve
Almost one in three SMEs were considering closing or selling their business within the next six months due to the impact of the Covid-19 recession, unless there is a significant improvement in conditions, a national small business poll has found.
Twice-yearly polling of a representative sample of small businesses across the country in the ScotPac SME Growth Index* found consideration about closing or selling is even higher for smaller SMEs.
ScotPac CEO Jon Sutton said the results serve as a warning rather than “doom and gloom” for the small business sector, given SMEs were surveyed over four weeks in September and October and conditions are now significantly brighter.
“Victoria is now out of lockdown and small business owners may be more optimistic than last month. However, these findings serve as a warning of the precarious position for many SMEs if another lockdown occurs or significant border closures remain in place,” Mr Sutton said.
“The research shows just how much so many within the small business sector have been hurting.”
Smaller businesses harshly impacted
Of the 1252 SMEs surveyed, almost one in three were considering closing or selling due to the impact of the pandemic and a further one in seven were unsure if they would close or sell. (Retail hardest hit – see below for industry breakdown)
The smaller the business, the more severe the impact of the pandemic on their long-term strategic objectives and on their solvency – two out of every five smaller sized SMEs (with $1-5m annual turnover) say they are looking to sell or close by April 2021 if conditions don’t significantly improve.
Almost one in four larger SMEs (those with $5-20m turnover) are in the same boat.
Of the SMEs considering drastic action if circumstances don’t change, 17.9% are considering selling and 13.3% considering closing.
Impact of stimulus on SME borrowing
The SME Growth Index found SMEs experienced no significant change in demand for borrowing due to the pandemic, with 28% of SMEs relying on the government stimulus and a further 28% not requiring the stimulus. Only one in five SMEs reported their short-term funding needs increased due to the pandemic; one in 10 had decreased borrowing demand.
During the COVID crisis, one in 12 small businesses added non-bank funding facilities to deal with the impact of the shutdown on their supply chain and revenue, with a further one in eight saying they will add non-bank funding facilities once their government stimulus ends.
Shakeup in SME funding market
Business owners were asked what funding adjustments they’d make in response to stimulus measures coming to an end by April 2021.
Mr Sutton said the results point to a significant shakeup within Australia’s small business funding sector – nearly two thirds of SMEs are planning to reassess the way they fund their business.
Almost a quarter of small businesses also plan to reassess their funding provider, with one in eight planning to add non-bank funding facilities to cope with their cash flow needs post-stimulus.
A key concern is that 41% of smaller SMEs have no idea how they will fund their business for the next six months, being either unsure how they will adapt or unable to plan that far ahead.
“Given more than a quarter of SME respondents were covered by the stimulus, it’s important to consider what impact its withdrawal will have between now and April 2021,” Mr Sutton said.
“This is an issue that small business owners should take seriously. The financial aftermath of the Covid crisis is a call to action for SMEs to make the hard decisions about their business – how viable it is, what happens when ATO debts are enforced and other debts fall due, how to deal with the end of JobKeeper, and the best way to fund the business.”
Mr Sutton said the research results highlight the importance of each SME finding the right funding to unlock working capital (see ASBFEO and ScotPac’s Business Funding Guide).
Retail hardest hit
The retail sector has been hardest hit. Fewer than one in 10 retail SMEs were certain they wouldn’t close or sell before April 2021; if conditions did not significantly improve 34% were planning to close, 31% planning to sell and almost as many (26%) unsure of what they’d do.
Mr Sutton said the manufacturing and wholesale sectors have also felt an impact, transport and business services have been resilient, while SMEs in the mining sector remain relatively unaffected.
For manufacturing SMEs, without significant improvement 17% would be looking to close, 24% to sell, with 18% unsure.
A quarter of wholesale businesses were looking to sell, with one in 8 looking to close and a similar percentage unsure.
Small businesses within the transport sector indicated 3% would look to close, 9% to sell and 14% were unsure.
Nine out of 10 mining SMEs indicated they would continue in their business even if conditions did not significantly improve.
*About the SME Growth Index Twice yearly, East & Partners on behalf of ScotPac interview a representative sample of Australian SMEs – the owners, CEOs or senior financial staff of 1252 businesses across a range of industries and all states, with annual revenues of $A1-20m. This round, the interviews took place over four weeks, ending October 9 2020.