10 Insights from the SmartCompany–WHK SME Directions Survey

8/3/2019 10 Insights from the SmartCompanyWHK SME Directions Survey

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the SmartCompanyWHKSME Directions Survey

10 Insights from


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10 Insights from the SmartCompany - WHK SME Directions Survey

www.smartcompany.com.au

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Introduction

Its been a challenging year for Australias SMEs. Patchy economic conditions, the strongAustralian dollar and political uncertainty have not made it easy to achieve revenue and

prot forecasts or plan for the year ahead.

But what will 2012 hold? More of the same? New challenges? Or the recovery that many

entrepreneurs are waiting for?

The inaugural SmartCompany-WHK SME Directions Survey, sponsored by Australasias

leading SME accounting and nancial services provider WHK, canvassed the views of

more than 600 entrepreneurs and managers from around the country on everything from

growth plans and prot forecasts to the carbon tax and their worry list.

The clear message is that despite some bruises from a tough year, Australian SMEs

remain upbeat, with relatively strong revenue and prot targets and a strong desire to bring

on new staff.

These are entrepreneurs who are intent on planning carefully and regularly, driving

efciencies in their businesses and looking for organic growth opportunities they can

quickly seize upon.

SmartCompany and WHK are committed to listening to the SME community and hope our

inaugural SME Directions Survey will continue a long and valuable dialogue with the engine

room of the Australian economy.

James Thomson, Editor


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A tough year, but forecasts remain strong

The SmartCompany-WHK SME Directions survey highlights just how challenging a year

the SME community has faced. Fragile consumer and business condence, the rapid

appreciation of the Australian dollar and the natural disasters that rocked the country at the

start of 2011 havent made it easy to execute growth plans.

It is no surprise then that many businesses missed their growth targets over the past 12

months. According to the survey, 54.6% of respondents missed their revenue goals, while

just over 60% of respondents missed prot targets.

Respondents in South Australia and Queensland struggled the most. More than 70% of

South Australian respondents missed their revenue targets, while 65.3% of respondents in

the Sunshine State missed their prot objectives.

But thankfully the choppy

conditions of 2011 havent

dented the condence of

SMEs heading into 2012, with

respondents expecting revenuegrowth of about 15% and prot

growth of around 10%.

If those targets can be achieved, it would represent a very credible rebound for the SME

sector. Given what weve seen in the last 12 months, a period of stability and economic

growth will be needed to make that strong outlook a reality.

15% - Revenue growth expected in 2012

10% - Prot growth expected in 2012
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Australian economy to remain steady

but interest rates need to fall

Predicting where the Australian economy is going in 2012 is a little like trying to bottle

lightening. But our valiant SMEs have dared to go where many economists fear to tread.

Based on their sobering view of the economy, it appears that the best Australia can hope

for is steady growth, but theres a clear risk that we may go into reverse.

Just over 43% of respondents said they expected the economy to remain steady, with35.5% expecting negative growth and just 15.5% expecting positive growth of any kind.

Perhaps thats why so many SMEs are looking for further rate cuts. Almost 90% said that

rates need to be lower, with most looking for a cut of 1%. That might be wishful thinking

from SMEs, but it does underline how much SMEs want some more relief from the RBA.

While sentiment on the overall economy is relatively weak, most respondents were more bullish

on their individual sectors, with 27.5% expecting growth and 8% expecting strong growth.

The most bullish sector was the internet industry, where 46.7% of respondents expect

growth and 26.7% expect strong growth. In the IT sector, 35.7% of respondents expectgrowth and 9.5% expect strong growth, while the health sector continues to ride a

demographic boom, with 46.7% of respondents expecting growth and 16.7% predicting

strong growth.

Strong negative growth

Negative growth

Steady

Growth

Strong growth

5.4%

35.5%

43.6%

13.8%

1.7%

What is your sentiment on the economy?

Response

Percent


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3

Cashow still keeping entrepreneurs up at night

There are plenty of issues that can keep

an SME entrepreneur up at night, both

inside and outside their business. With that

in mind, we asked respondents to rank the

top three issues on their worry list.

Leading the eld is the perennial problem

of the entrepreneur cashow. Given how

difcult it has been to meet prot targets,

this is not surprising.

What was surprising was the fact that

the global economy rated higher on the

worry list than the domestic economy.

While Australia is of course not insulated

from the problems in Europe and the

United States, SMEs have pulled back on

exporting and because of this, they arenot as exposed to international markets as

they were in the past. Nonetheless, this underlines the huge impact that events overseas

are having on consumer and business sentiment.

Another interesting feature of the worry list is how low respondents placed industrial

relations. While this has become a hot-button issue in the business community in recent

months, SMEs appear to be having few workplace problems at present.

The top 10 SME worry list

1. Cashow

2. The global economy

3. The Australian economy

4. Rising costs

5. Tax and business regulation

6. Skills shortages

7. Interest rates

8. The carbon tax

9. The Australian dollar

10. Industrial relations

Andrew Baird, Business Adviser, WHK Melbourne VIC

Over the years we have found that cash ow management remains an

ongoing challenge for clients, regardless of whether they are experiencing a

decline in sales or signicant sales growth. Vigilant cash ow management is

the life line of a business.


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SMEs better understand carbon tax but still worried

about imact on prot

With a carbon tax set to come into force on July 1, 2012, SMEs

really need to start thinking about the potential impacts of the

tax on their businesses.

Happily, there is clear evidence that this is happening.

Back in September, WHK asked SMEs whether they

understood the impact of the carbon tax on their businesses

and just 17.4% said they did.

This dramatic change in the level of understanding among

SMEs follows the passing of the Gillard Governments carbon

tax legislation in early November and an increase in the

Governments efforts to educate the business community about

how the tax operates and what compensation is available.

Three months on, that has changed dramatically, with 49.1% ofrespondents saying they understood how the tax would affect

them.

SMEs also appear to be less concerned about how the tax

will impact their prot. While in September 72.9% of those that

understood how the carbon tax would affect them said they

expected to see their prots fall, this number dropped to 45.8%

three months later.

YesNo

49.1%50.9%

Increase

11.4%

No change45.8%

Decrease42.8%

Do you understand the impact of the

carbon tax on your business?

Do you expect the carbon tax to increase

or decrease your business proft?


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Organic growth the main focus

We know the SMEs

surveyed have strong

revenue and growth

targets for the year

ahead (15% and 10%

respectively), but how

do they plan to achievethem?

Organic growth is their

answer, with 41.6% of

respondents ranking this

as their key strategy for the year ahead. This is not surprising, given the conditions that

many of the SMEs in the survey would have faced in the last 12 months.

Other internally focused growth strategies namely improved pricing and margins and

improved business operations/efciencies were also high on the list, suggesting SMEs

will look to the current core business to drive growth.

However, its clear that tough times havent meant an end to innovation. The second most

prominent strategy was growth through new products, which suggests a reasonable level

of condence from entrepreneurs.

The drive to grow via the release of new products was seen most strongly in the

information technology sector, while the health and manufacturing sectors were more

focused on organic growth.

What we wont be seeing is much in the way of takeovers, mergers or exporting. In the

current climate, it appears that these growth strategies are viewed as simply too risky forSME entrepreneurs.

1. Organic growth

2. Growth via new products

3. Improved business operations/efciencies

4. Improved pricing/margins

5. Growth via geographic expansion in Australia6. Growth via geographic expansion overseas

7. Growth via takeover or merger

Philippa Bakes, Business Adviser, WHK Western Victoria

With fewer SMEs looking to exit, opportunities for acquisition may not

be numerous but there is still a ready supply of baby boomers coming

up to retirement. Its worth keeping an eye on your market and not ruling

out an acquisition - it could give you the boost yourbusiness needs.


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Hiring intentions remain strong

A slight rise in unemployment over the second half in 2011 had many economists worried.

Was unemployment about to become yet another challenge for the Australian economy?

The SmartCompany-WHK SME Directions Survey shows that shows that concern about

weak employment growth may be unfounded, with 60.5% of respondents saying they plan

to hire in the next 12 months.

Hiring intentions were strongest in New South Wales (where 64.5% of respondents intendto hire), followed by Queensland (56.1%). Surprisingly, mining state Western Australia had

the weakest intentions, with 42.9% of respondents planning to hire.

Looking at the data by industry, information technology has the strongest hiring intentions

(70.7% of respondents intend to hire), with education, telecommunications and the internet

sector also looking to take on new staff.

It appears the slight weakening of the labour market in recent months should make it

easier to nd staff; of those looking to hire, 52% have no concerns about skills shortages.

Of those not looking to hire, the most common reason was that the business has no needor funds.

Will your business be hiring in the next six to 12 months?

0

10

20

30

40

50

6070

80

NSW QLD SA VIC WA

Yes

No


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Demand for funding dips

The relationship between the SME community and the banking sector has been strained

in the last few years, to say the least. In many cases, its become something of a he said,

she said situation: SMEs say the banks arent prepared to lend at attractive terms, while

the banks say demand for business loans has fallen.

The truth probably lies somewhere in between, although our survey suggests demand

for credit is down. When asked whether they would seek external funding in the next

12 months, only 35.1% said they would do so, with demand for credit particularly low in

Queensland and Western Australia.

This is hardly surprising given that businesses are going to focus on organic growth

strategies in the coming year (presumably these will either be funded through cashow or

retained earnings).

Of the businesses that will seek external funding, the most likely form of fresh capital is

from new investors, followed by existing investors.

Increasing funding from the banks was the third most popular option, which suggests the

tensions from the GFC still linger.

0

1020

30

40

50

60

70

80

Will you increase or decrease funding from these sources?

BANKS OR SIMILAR EXISTING INVESTORS NEW INVESTORS OTHER FORMS OF FUNDING

increase

Decrease

No change


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Planning now a quarterly event

The rapid changes weve seen in economic conditions in the last few years have made the

job of business planning difcult for most entrepreneurs.

In the recent past, ve-year or even 10-year plans were commonplace in Australian

businesses. But the SmartCompany-WHK SME Directions survey reveals a very different

approach is now being taken.

Setting aside the 29.7% of respondents who said they didnt have a business plan (wehope these SMEs are working on theirs as we speak) we can see that business plans

are in the main now stretching a maximum of three years (the time-frame for 29.1% of

respondents who have an active plan) and often less.

Just 16.8% of respondents have a ve-year plan, and only 7% of those surveyed had

a plan stretching more than ve years. In this environment, seeing that far ahead is

incredibly difcult.

Not only are business plans focusing on the shorter term, they are also being reviewed

more frequently. Just over 36% of respondents said they are now reviewing their business

plans quarterly, with 24% re-examining their plans every six months and 22% looking at

their plans on a monthly basis.

This two-tier planning system where the broad business plan looks ahead a maximum

of three years and is frequently reviewed is likely to remain a feature of the SME

community in the coming year.

Derek Campbell, Chief Executive, WHK Townsville QLD

Planning has always been a key tool but with such volatility in exchange

rates, changing interest rates and uncertainty in the economy, monitoring

progress against plan is critical right now. And having the exibility to respond

to changing conditions will enable business owners to

capitalise on the opportunities these changes present.


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SMEs not looking for the exit

For most of the of past decade, SME experts

and advisers have been warning of a wave of

business exits as the baby boomers prepare

for succession and get ready to hand over their

businesses.

But it hasnt happened. The global nancial crisis

appeared to convince many entrepreneurs that

they needed to stay at the helm and guide their

businesses through the difcult conditions. On top

of this, a fall in asset values meant they were not

going to receive the big nest egg they might have

expected when it did come time to sell.

This sentiment appears to still be prevalent in

the market. When asked whether they had a

business exit strategy in place, only 35.3% of

respondents indicated that they did.

There could be a number of reasons for this, including economic conditions, sectoral

conditions or the specic circumstances of businesses. For example, younger businesses

tend not to think about exit plans, even though it is always smart to do so.

But the bottom line is the great wave of exits will be delayed for at least another year and

quite possibly longer.

Of those respondents who do have an exit plan, selling the business was easily the most

popular exit strategy. Family succession and management buy outs were the next most

popular options, although a surprising number of respondents said they were likely to windthe business down when the time came exit.

David Cooke, Business Adviser, WHK Bathurst NSW

For some SME business owners the value of their business is their only

retirement capital. And surprisingly, most have either no idea, or conversely,

completely unrealistic expectations of what their business is worth. So if the

business owner is hoping for a business sale to fund their retirement, they

need to start sooner rather than later - even if they arent ready for exit yet!

That old catch phrase - Start with the end in mind....

is so true for SME business owners.

What is your exit plan?

Sale of

business

60.1%

Family

succession

11.5%

Other

13.8%

Management

buyout

9.2%

Publiclisting5.5%


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New Year, new plans

The tenor of the SmartCompany-WHK Directions Survey is clearly mixed. The battle scars

left by missed targets in the last 12 months mean entrepreneurs remain cautious, even if

revenue and prot forecasts are reasonably strong.

But we know SME entrepreneurs are a

positive bunch, and difcult conditions

wont stop them working on ways to

improve their businesses.

With this in mind, we asked them what

they are doing to make 2012 a success. A

few common themes quickly emerged, as

you will see from the quotes at left.

SMEs remains focused on marketing,

communications and lead generation,

which is the lifeblood of any business.

But perhaps the biggest theme is that of

creating internal processes and systems

within fast-growing businesses. In any

SME, the transition from small to medium-

sized business can be difcult and requires

the leaders of a company to move into different roles. Building the systems and processes

needed to support this transition is one of the most important things an entrepreneur can do.

Ill improve how we are organised

so that I can delegate more tasks

to free up time to invest in product

development and marketing.

Im going to spend a decent

amount not the usual penny

pinching amount of money on

branding and quit doing this myself

or using other cheap designers.

Ive had a blinding ash of theobvious that this is the one thing I

have done poorly in my business.


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10 Insights from the SmartCompany WHK SME Directions Survey


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Accounting and nancial services are much more than just a numbers game. To us theyre

about understanding your business and gaining knowledge that will help it grow. We can

provide a picture of where you sit versus your competition and unearth those rare insightsthat will give you the advantage you seek.

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10 Insights from the SmartCompany–WHK SME Directions Survey

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