Recession on the minds of SMEs

Concerns about an impending recession and reports about business confidence plunging to new lows have made many SMEs anxious of their future, according to new research.

The latest bi-annual Canary in the Coal Mine report by Prushka Fast Debt Recovery revealed that, among the 500 Australian small-business operators surveyed, only 22 per cent are confident in the state of their business right now, and fewer than a third are planning to grow over the coming 12 months.

By contrast, 66 per cent of SMEs fear a recession affecting the Australian economy and 62 per cent believe such a recession will be the worst in the past 20 years.

Roger Mendelson, CEO of Prushka, said that SMEs should be prepared to continue even in the midst of an uncertain and volatile environment.

“COVID-19 has impacted the health of the global economy and Australian SMEs are feeling the pressure on the bottom line. Over the past 12 months, business confidence has halved, and many SMEs are just trying to stay afloat,” Mendelson said.

“Until now, businesses have had to make tough decisions to survive and, as restrictions slowly begin to ease, there will be new challenges to overcome. Now more than ever businesses should be focused on best- and worst-case scenario planning, to ensure they have a framework in place that allows their business to operate no matter the circumstances.”

More than half of SMEs said that the COVID-19 pandemic has brought the most adverse impact on their business in the past 12 months, followed by the state of the economy and reduced consumer spending. When asked what their biggest concerns were over the coming 12 months, profitability, cashflow, and customer growth are seen as major concerns.

While 56 per cent of SMEs said they have a cash buffer in place to mitigate their cashflow issues at the moment, businesses still rely on personal funds as a temporary measure, a trend which has risen by 16 per cent over the past 18 months.

“It is concerning that SMEs are still continuing to rely on their own funds in times of strife, as this can place pressure on families,” Mendelson said. “Forecasting a business’s cashflow ahead of time can help you plan any expenses around your projected cash inflows and ensure you are adhering to your credit collection processes.”

While businesses are battening down on offering credit, almost half of them report that they are still finding it harder to collect debt.

“While it’s a good sign that SMEs are spending less time chasing debts, it’s still concerning they are finding it hard to collect,” Mendelson said. “For SMEs to survive in this new normal, they must be adaptable, flexible, and able to act on decisions quickly. Strong cashflow processes are more important than ever for survival.”

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