Undertaken in March 2011, the study benchmarked the planning practices of 208 SME owners and assessed the effect of recent global financial conditions on businesses. The owners surveyed maintained a high level of satisfaction with their decision to run their own business over the four-year period from 2007 to 2011. They reported improved trading conditions over the last two years, with 73 per cent experiencing revenue growth, up five per cent from the previous year.
Marginally higher levels of optimism about their companies’ medium-term prospects were reported, with three-quarters of SMEs expecting to grow in the next two years. The steady growth of between one and 14 per cent experienced by 31 per cent of SMEs over the last two years is giving business owners confidence for the future.
Borrowing still tight
Despite improved trading conditions, the majority of SME owners do not expect to see any improvement in the availability of finance in the short term: more than half responded negatively when asked whether financing the business will be easier in the next 12 months.
With financing not so readily available, SME owners are expecting to place greater focus on reducing overheads and increasing prices in response to business conditions over the next 12 months.
Soft landing for government policy changes
When asked to reflect on the effect of changes to government policy, 44 per cent of SME owners only report a low-to-moderate impact from the investment allowance, 37 per cent from the water policy, 37 per cent from paid parental leave, 40 per cent from the stimulus package, and 48 per cent from Fair Work Australia policies.
This is surprising, given the attention that is often given to new government policies and their potential impact on businesses. While businesses are feeling some effects, it is reassuring to know that it is relatively minor compared with the level business owners may have first predicted when the policies were introduced.
Rate and currency fluctuations
SME owners surveyed remain nervous about interest rates, with 17 per cent reporting an increase in interest rates of one per cent would cause financial difficulties for their business and 35 per cent reporting it would cause some impact their business.
Just over half (52 per cent) of SME owners report no impact from the strengthening Australian dollar. We expect that the effects of the Australian dollar on SME owners are yet to be felt and the full extent to which they are affected will be revealed in the course of 2011.
The study highlighted the need for SME owners to address cash flow issues within the business. Around half (47 per cent) of those surveyed rely on reinvested profits as their main source of funding for growth; however, one-quarter continue to rely on forgone salary and one in five rely on bank debt. Being able to inject cash back into a business is great for growth, but SME owners forgoing salaries must be aware of the risks involved in having all of their financial interests invested in their business.
Retirement planning
Global financial conditions are continuing to take a toll on small business owners’ superannuation planning provisions. According to the study, just 7 per cent of business owners are completely satisfied with their superannuation provisions, while 23 per cent are not at all satisfied. Around one in five SME owners (18 per cent) reported that the economic uncertainty of the last two years has impacted on their superannuation planning, causing them to decrease their superannuation contributions.
Inadequate superannuation provisions continue to play on the minds of SME owners, leading them to seek advice where they have not previously been inclined to. However, 43 per cent of respondents indicated they will invest some proportion of their retirement funds into superannuation after leaving the business, indicating a marginally higher level of confidence in the sector than in 2010.
While 38 per cent of SME owners have a plan to exit their business, the survey also revealed a need for SME owners to have a well thought out exit strategy. A significant number of those with an exit plan are not aware of tax concessions available for small businesses upon sale.
On average, SME owners are getting older, which means for many, retirement is looming. The findings highlight a continuing need for SME owners with a plan to exit their business to gain more precise information about the value of the business and available tax concessions, so they can maximise income for their future retirement.
