SME Business Confidence On The Rise
Confidence amongst SMEs is improving and more businesses are expecting to see growth in the next 12 months, according to new research.
The latest MYOB Snapshot, a survey of over 400 SME decision-makers across the country, showed confidence levels have improved since March. While almost two-thirds (64%) expect the economy to decline over the next 12 months – more than a quarter (26%) significantly – 29% believe it will improve, putting sector confidence at net negative 35%.
While still strongly in negative territory, the level of sentiment is a marked improvement on MYOB’s March Business Monitor, which showed confidence at net negative 71%.
MYOB New Zealand Country Manager, Ingrid Cronin-Knight, says while it is very early days for businesses aiming to make up for commercial losses resulting from the lockdown, it is encouraging to see sentiment improving amongst the SME sector.
“The COVID-19 crisis has been labelled as unprecedented for a reason and there’s no doubt that local businesses have been hit extremely hard,” says Ingrid.
“While confidence is still well down on previous years and we still have a long way to go as we strive to rebuild a thriving economy, it is very heartening to see our SME sector displaying the resilience and optimism they are renowned for.
“We’re certainly not out of the woods and it’s likely there will be more tough times ahead, but this attitude and their efforts to drive an upturn in their operations, will be a big contribution as we aim to recover.”
Agribusiness leading sector confidence
While overall confidence is improving, there’s a marked difference across industries, reflecting the uneven impact of the crisis on local businesses.
The agribusiness sector, which has seen demand from overseas markets remain stable and even grow in some areas, leads the way in terms of confidence. The manufacturing and wholesale sector, and professional, property and finance industries are also more positive than the sector average. By contrast, the hard-hit retail and hospitality industry and the personal services sector are reporting below-average confidence.
Net confidence by sector:
· Agribusiness (-4%)
· Manufacturing and wholesale (-30%)
· Professional, property, finance (-31%)
· Construction and trades (-34%)
· Retail and hospitality (-48%)
· Personal and other services (-52%)
Looking at how confidence is split across the regions, Auckland is the most positive of the centres with confidence for SME operators in the city at net negative 32%, while Wellington SME operators are the most pessimistic at net negative 66%.
Drop in revenue becoming more apparent
Despite the modest lift overall in confidence, significantly more businesses have seen a fall in their annual revenue since March.
The latest MYOB Snapshot shows that 60% of SMEs have reported a decline in revenue, compared with the same period 12 months ago. When surveyed in March, just over a quarter (26%) said their revenue was down on March 2019.
As reflected in their confidence levels, agribusinesses appear to be feeling the least financial impact from the crisis, with a modest revenue fall and a significant proportion of SME operators in this sector showing stable revenue over the last 12 months. Unfortunately, revenue decreases are far more significant in other sectors, such as retail and hospitality, manufacturing, construction and trades and personal services.
Revenue by sector (last 12 months):
|Sector||Revenue down||Revenue up||Revenue same|
|Retail and hospitality||77%||6%||16%|
|Construction and trades||67%||15%||18%|
|Manufacturing and wholesale||61%||11%||25%|
|Professional, property, finance||53%||14%||33%|
Growth anticipated for 2021
Looking ahead to 2021, more SME operators are forecasting growth compared to the pre-lockdown period.
Just over a third (34%) expect business revenue to increase over the next 12 months, in comparison to MYOB’s Business Monitor from March which showed 21% of SMEs were expecting an increase in revenue in the year to March 2021. What’s more, while 38% anticipate a decline in revenue over the next 12 months, this is still a slight improvement on March insights which revealed 40% expected to see a decrease.
“While we need to be clear these are small improvements and the performance of the SME sector is still finely balanced, these are definitely better numbers than the sector was expecting as we headed into Level 4 lockdown. That’s encouraging for the longer term,” says Ingrid Cronin-Knight.
Across the sectors, agribusinesses are expecting a return to positive growth in the year to June 2021, while the personal services sector is also expecting to rebound through the rest of the year. The retail and hospitality industries are also seeing signs of significant improvement, with five times the number of businesses expecting an increase in revenue compared to those expecting it stay the same by 2021.
Revenue by sector (next 12 months):
|Sector||Revenue up||Revenue down||Revenue same|
|Professional, property, finance||32%||36%||29%|
|Retail and hospitality||32%||48%||6%|
|Construction and trades||28%||44%||26%|
|Manufacturing and wholesale||28%||50%||19%|
Larger businesses and more established businesses are looking to bounce back more quickly. Enterprises that employ more than 50 staff are more likely to expect revenue to be up in the next 12 months, compared with the present time (44%), along with 44% of businesses who have been in market for 5-10 years.
For those who have been in business for between 2-5 years, more than a quarter (29%) are forecasting business growth in the next 12 months.
Regionally, the next 12 months are looking more positive for Canterbury SMEs, with nearly half (45%) anticipating an increase in revenue, compared to just 22% forecasting a revenue increase in the capital. In Auckland, 43% of SMEs expect revenue will decline, while nearly a third (30%) expect an increase.
The working from home effect
The research also highlighted an interesting phenomenon: ‘the working from home effect’, according to Ingrid Cronin-Knight.
“Our MYOB Snapshot results revealed businesses that were able to have staff work from home, performed slightly better than those who were able to operate as usual during lockdown. They are also bouncing back more quickly,” explains Ingrid.
“This really highlights the importance of businesses adopting the digital tools and processes needed to successfully remotely and the productivity gains these bring when implemented in a work environment.”
For those with staff working from home, 56% saw a fall in revenue, 15% an increase and 27% stayed the same, while for those operating as usual through lockdown, 59% said their revenue fell, 12% improved and 29% had the same revenue. As expected, the revenues of businesses forced to close during lockdown took a significant hit, with 82% saying their revenue was down in the 12 months to June 2020, while just 4% reported an improvement and 14% saw the same level of revenue.
Revenue based on operating mode (last 12 months):
|Operating status||Revenue down||Revenue up||Revenue same|
|Operated as usual||59%||12%||29%|
|Worked from home||56%||15%||27%|
The difference is more noticeable in the forward projections of SME business operators, with 38% of those who worked from home expecting revenue to improve in the next 12 months, compared to 24% of those that operated as usual. Comparatively, 39% of those who worked from home are expecting revenue to fall, compared to 43% of those who operated as usual.
“In any other year, the level at which both confidence and revenue projections sit at the moment would be extremely concerning,” says Ingrid.
“However, given the magnitude of the local and international impact of the COVID-19 crisis, the results of our latest Snapshot are somewhat encouraging. While it will continue to be a tough year for many SMEs, the projections of growth returning in many sectors are a heartening early sign as we navigate our recovery.”