Australian small businesses are much less confident about their financial health than larger businesses, according to credit reporting bureau CreditorWatch’s, Business Sentiment Survey.
The results found that 82 per cent of decision-makers in large businesses rated their business’ current financial health as ‘good’ or ‘very good’, compared to 76 per cent of medium-sized businesses and just 45 per cent of small businesses.
The report also found that the average value of invoices held by businesses has fallen to a record low with a 49.9 per cent drop in June 2024, which is attributed to businesses being forced to reduce inventory as a result of higher prices and declining demand.
Invoice payment defaults have continued to increase since mid-2021, which the report notes is an indication that businesses are finding it increasingly difficult to pay their suppliers, despite lower order values.
Small-business decision-makers are also significantly less optimistic about their financial performance compared to their larger counterparts. Only 43 per cent of small-business decision-makers rated their business’ performance as ‘good’ over the past 12 months, compared to 73 per cent for medium businesses and 79 per cent for large businesses. Conversely, 19 per cent of small businesses said their performance was ‘poor’ or ‘very poor’ compared to five per cent for medium businesses and 7 per cent for large businesses.
In terms of outlook on the current climate for businesses, only 31 per cent of small businesses said the current climate for businesses was ‘good’ or ‘very good’ compared to large- (70 per cent) and medium- (60 per cent) businesses. Meanwhile, 29 per cent of small-business decision-makers said conditions were ‘poor’ or ‘very poor’ against nine per cent for large businesses and 14 per cent for medium businesses.
The research also noted that the financial and insurance sector expressed significantly higher optimism, with 37 per cent regarding business performance over the past 12 months as ‘very good’. This contrasts sharply with the distribution (10 per cent), retail and hospitality (15 per cent), and construction (17 per cent) sectors.
Business decision-makers in the financial and insurance sector were also the most positive about the current financial health of their businesses, with 68 per cent of decision-makers saying it was ‘good’ or ‘very good’. This stands in sharp contrast to the 21 per cent of business decision-makers in the distribution and travel category who rated the current financial health of their businesses as ‘poor’ or ‘very poor’. 14 per cent of retail and hospitality sector respondents and 13 per cent of production respondents echoed this sentiment.
The latest CreditorWatch Business Risk Index, which shows the outlook for businesses in the hospitality industry, also reported dismal figures, with failures forecast to increase from 7.5 per cent to 9.1 per cent, or one in 11 businesses, over the next 12 months.
CreditorWatch’s CEO, Patrick Coghlan, commented that the results highlight a stark contrast in financial optimism between large and small businesses, with smaller businesses feeling the brunt of economic pressures more acutely.
“Businesses are really hurting. They are experiencing a combination of rapid price increases, a series of interest rate hikes, and rising wage costs. On top of that, cost-of-living pressures mean that consumer demand has fallen away,” Coghlan said. “Our June Business Risk Index showed invoice values have plummeted by 49.9 per cent over the past year, and payment defaults are rising. Industries like hospitality are hit hardest due to their reliance on discretionary spending. Smaller businesses, operating on tighter margins and with depleted cash reserves, are struggling the most.”
