News, Insights and Stories from the Australian and New Zealand tech ecosystem.

Small Business Optimism Rises

Small business optimism has returned to levels not seen in almost two years according to the latest Bibby Barometer survey launched this month. Sixty-five per cent of small businesses are more optimistic about sales growth in the coming 12 months, up from 55% in July 2011.

As expectations of sales growth have recovered, so too have business investment intentions. Twenty-eight percent intend to invest in their business in the coming 12 months compared to 20% six months ago. About half (49%) intend to maintain their current level of investment while only 8% remain pessimistic and expect a decline in sales over the coming year.

The survey, which is conducted bi-annually on over 200 small businesses, found that Australian small business decision makers are still concerned about global economic conditions. Almost half (47%) are more concerned about global economic conditions than they were a year ago, and this is little changed in the past six months (51%).

Gary Green, National Sales Director, Bibby Financial Services said: “There is no doubt that small business sentiment is improving. Low and falling interest rates have had a positive impact on the majority (57%) of small businesses and a further rate cut is likely to increase small business confidence.

“However despite the recovery in business optimism, cash flow continues to be a leading constraint. Our Barometer found that 48% of small businesses are experiencing problems with cash flow, which is little changed over the past 6 months (49%).  At this time of year businesses are faced with meeting tax and other statutory obligations placing considerable pressure on cash flow,” Mr Green said.

Cash flow continues to plague small businesses

According to the survey, a contributing factor to cash flow issues is the length of time that small businesses are waiting to be paid, with 48% experiencing delays compared to 12 months ago. Thirty-four per cent reported having an invoice that was months overdue in the past year, 23% have had a customer go bust and 21% have had their clients increase their terms of trade so they have to wait longer to be paid.

To combat cash flow issues, 73% of small businesses have implemented new methods for managing their cash flow situation. Twenty-four per cent offer early payments discounts, 24% conduct cash flow forecasts, 20% conduct periodic cash flow health checks with accountants or advisers, and 19% conduct credit checks on new customers.

“Small businesses are just as likely to manage cash flow by dipping into their personal finances (20%), or else taking out or increasing their overdraft (17%) which is placing increasing stress on business owners,” Mr Green said.

Funding and economic outlook

Looking ahead, many small businesses have become more pessimistic about payment terms with 37% expecting the length of time to be paid to increase in the coming quarter. Most (57%) expect the time it takes for them to be paid to remain the same.

The Barometer showed that 22% of small businesses intend to seek new funding for growth over the coming 12 months and 17% will be looking for funding to provide working capital. While 31% will be looking to pay down an existing loan and 22% intend to refine existing debt.

“The increased intention of small business decision makers to invest in their business this year makes funding an even higher priority than other periods of the survey,” he said.

Bibby Barometer Index

From the overall Bibby Barometer survey, a Bibby Barometer Index is constructed which measures small business expectations for a healthy business environment which is based on intention to invest in the business, expectations of sales growth, ease of managing cash flow, business confidence, and levels of business stress. Since the previous reading in July 2012, the Index shows a recovery of 13 points.

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