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Small businesses predicting bumper year

Thursday 22 September

Small businesses predicting bumper year

Trades, Manufacturing and Services sectors all growing

Revenue and optimism on the increase

Buoyant Auckland market driving economy

More evidence of a pick-up in the New Zealand economy is apparent in the latest MYOB Colmar Brunton Business Monitor survey of more than 1,000 small to medium enterprises. The six-monthly survey reveals an increasing number of SMEs are experiencing improved trading conditions and there has been a huge turnaround in optimism about the year ahead.

When asked about their business’s revenue, 39 per cent of respondents reported an increase in the last 12 months, up from 37 per cent in March and 31 per cent a year ago. Just 17 per cent of SMEs saw revenue fall over the period, down from 21 per cent in March and 25 per cent in August 2015.

SME operators are even more bullish on the next 12 months, with 42 per cent expecting their revenue to grow in the next year, while just 11 per cent are forecasting a decline.

That performance has driven a remarkable turnaround in confidence about the state of the broader economy. A net positive 26 per cent of businesses are now optimistic about the economy, up from a net negative 30 per cent in August 2015.

Underpinning that confidence is another strong quarter expected up until Christmas. Thirty-seven per cent of SMEs have more sales or orders in the pipeline until the end of the year; while fewer than half that number (15 per cent) have seen sales fall off.

MYOB NZ Head of SME Ingrid Cronin-Knight says improving conditions are being driven by growth in key sectors and the booming Auckland economy.

“We’re seeing a lot more confidence about the year ahead from small businesses right around the country,” says Ms Cronin-Knight. “Many SMEs are seeing gradual improvements in their revenue as fears ease about the wider global economy, dairy sector optimism improves and consumer spending picks up.”

“SMEs are often the first parts of the economy to benefit from upturns given how important cashflow is to their operations. It’s great to see optimism growing out there.”

Auckland driving growth

Significant momentum in the Auckland market is driving a good deal of the growth, with close to half (46 per cent) of all SME operators in the city reporting improved revenue in the last 12 months. Auckland business operators are expecting that trend to continue over the coming year, with 44 per cent forecasting growth for 2017, off the back of a strong quarter for the end of 2016 during which 45 per cent have more work or sales in the pipeline.

Improvements in the Wellington economy have consolidated over the last year, with over a third of SMEs (35 per cent) again enjoying revenue growth, while Christchurch has fallen off the peaks reached during the height of the rebuild.

A diversified economy

The success of the local SME economy is reflecting the ability of a more diversified economy to weather international uncertainty, with growth across key sectors.

“Businesses are a lot more resilient these days. They’re getting smarter about managing their operations to get through difficult times and are now set up for a successful year ahead,” says Ms Cronin-Knight.

While the dairy sector has been doing it tough, it hasn’t led to the wider economy falling down. That’s extremely positive for the whole country and points to an increasingly diversified economy.”

As evidenced by the performance in Auckland, the construction sector has enjoyed a stellar year, with just under half (49 per cent) of all construction and trades SMEs seeing revenue grow over the period and only 13 per cent reporting a fall in income.

Also continuing to show growth is the manufacturing industry. Forty-six per cent of SMEs in the sector showed improved revenue in the year to September 2016, while 12 per cent saw a fall. The professional services sector also saw solid growth (43 per cent) over the year.

Similar growth is expected into 2017 in each of these sectors (construction and trades, 40 per cent; manufacturing and wholesale, 44 per cent; business, property and professional, 45 per cent). However, operators in the retail and hospitality industry, in which growth this year was more finely balanced between those reporting revenue rises (32 per cent) and falls (28 per cent) are expecting to outstrip them all, with 49 per cent expecting to see improved performance in 2017.

Sector growth stimulating more employment

While jobs growth is likely to remain at a modest 12 per cent of all SMEs, those sectors experiencing higher revenue performance are more likely to be employing over the next 12 months. Over a fifth of businesses in the construction sector (21 per cent) and 20 per cent of manufacturers intend to take on more staff in the year to September 2017.

The construction sector is also more likely to be improving wage rates, with 25 per cent planning to pay staff more over the next 12 months, compared to 22 per cent across all SMEs.

Some inflationary pressures might be seen towards the end of the year, as 29 per cent of SMEs plan to increase their prices, and a growing number (28 per cent) make investments in plant and equipment.

Growth pressures ratcheting up

While SMEs across the board are enjoying growth, a flourishing economy is stimulating key pressures. A fifth of all business operators are concerned about cashflow in the year ahead, while 19 per cent are worried about competitive activity and 18 per cent are coming under increasing pressure from late customer payments.

Getting paid on time is of particular concern in the construction industry, with 27 per cent expecting the timing of customer payments will put them under extreme or quite a lot of pressure in the next year. This is also becoming a major problem for the manufacturing industry (23 per cent), along with the effects of fluctuating exchange rates (also 23 per cent).

“Cashflow is so important to SMEs. It is essential that business owners have a clear view of how their operation is tracking when it comes to payments and there are great online tools that can help improve debtor management. For any businesses that are struggling, we suggest talking to their advisors about what systems they can put in place to better manage cashflow,” says Ms Cronin-Knight.

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