Australian SMEs are struggling with cash flow

A record number of firms considering non-bank financing.

The latest report analysing business conditions for Australia's small- and medium-sized enterprises (SMEs) found confidence levels are incredibly fragile, with very few firms content with their cash flow situation and non-traditional lines of credit becoming more prevalent than ever.

The Scottish Pacific SME Growth Index - March 2017 was based on interviews with 1,253 chief financial officers and corporate treasurers across Australia's SME marketplace.

While the research shows business conditions have improved since the last Index in September 2016 (Post-Brexit and during Trump's US election campaign), just one in two (49.2%) small businesses are forecasting positive growth, down from 62.6% when the Index began in September 2014.

Business confidence is suffering, with average revenue range forecasts for negative growth SMEs increasing from 5% to 8% over the last two and a half years.

The report revealed one in four (27.7%) SMEs remain in consolidation mode, hesitant to jump at new capital expenditure and short term investments until demand improves and/or cash flow constraints ease.

Cash flow is a major issue among most small businesses. Seven years of gathered survey data from MYOB shows Australian businesses are more tech savvy and resilient but still struggle with cash flow.

Less than one in ten (8.5%) SMEs are content with cash flow and seven in ten (72.1%) SMEs said revenues over the past year would be more than 5% higher if cash flow was bolstered up. A similar number (70%) of businesses said 2016 revenues would have been 10-50% better if cash flow was improved.

Last year's Small Business Loans Inquiry investigated why lending for SME loans has become tougher and what effect Australia's late payment culture has had on cash flow and day-to-day operations.

A record high number of Aussie SMEs (22.2%) are seeking out alternative funding arrangements through non-bank financiers, while bank borrowing intentions continue to decline (down from 38.4% in September 2014 to 28.8% in March 2017).

Other forms of debt – such as trade credit, supplier terms and loans from family and friends – are now three times more prevalent for new capital expenditure (6.6%) than in September 2014 (2.5%).

The report outlines almost all SMEs (94.5%) are drawing upon their own equity to fund new investment.

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