Despite challenging market conditions, the latest SME Sentiment Tracker by market research firm Fifth Quadrant shows the Business Sentiment Index remaining steady at 100, consistent with the long-term average.
The December report highlights the fact that that, while 28 per cent of SMEs have experienced an increase in monthly revenue compared to the same period last year, over one-third continue to witness declining revenues. The most impacted sectors include hospitality, distribution, construction, and retail, underscoring the difficulties these sectors face adapting to the current market environment.
Profitability among these businesses has also remained relatively stable. Half of the surveyed SMEs report profits, while only 20 per cent are operating at a loss, an indication of effective cost management and operational efficiencies that have enabled many companies to maintain profitability despite revenue challenges.
However, SMEs remain concerned over rising input costs, indicating expectations of continued inflationary pressures into 2024. The overall economic outlook among SMEs remains cautious, with prevailing pessimism regarding global and Australian conditions. Nevertheless, a noticeable upturn in confidence was observed in December, which indicates a level of positivity for the coming year.
Looking ahead, short-term revenue projections for SMEs are also positive with one-third anticipating revenue increases in January. Furthermore, 37 per cent have set their sights on growth in 2024, with a decrease in the number of businesses (13 per cent) planning to downsize or exit. Additionally, 18 per cent of businesses project an increase in their workforce in the next quarter, with a third foreseeing higher wages.
On the other hand, projections for early 2024 indicate a modest decline in capital investment and marketing expenditures. The demand for finance also spiked in December, with 20 per cent of businesses indicating a need for additional funds to kickstart operations in 2024. However, while confidence in the ability to make loan payments has increased, loan stress remains a concern, particularly in the retail sector.
“Heading into 2024, the sentiment among SMEs appears cautiously optimistic despite challenging market conditions,” Fifth Quadrant, Managing Director, James Organ. “While revenue fluctuations persist, businesses continue to demonstrate resilience and effective cost management. Concerns over rising input costs and inflationary pressures remain, yet there’s a growing confidence in revenue growth and workforce expansion. In summary, many SMEs will be hoping for a brighter 2024, after another year of significant challenges.”
