Rules and red tape chief barriers to SME growth

SMEs, employers of more than two-thirds of Australia’s workforce, have named staffing regulations and excessive red tape as their main productivity constraints, in twice-yearly research which reveals a sector uncertain about revenue growth prospects.

Scottish Pacific CEO Peter Langham said the September 2017 Index found that only 48 per cent of SMEs were predicting revenue to rise through to February 2018, and on average were forecasting 4 per cent growth. 23 per cent were expecting negative growth and 28 per cent indicated they would be stable or consolidating.

SMEs name dealing with staff as top productivity barrier

Within this uncertain growth environment, SME owners were clear when asked what was hampering productivity – timely insight given the upcoming release of findings from the year-long Productivity Commission review. Productivity was most impacted by employment regulations (29 per cent), excessive red tape (23 per cent) and leave provisions (11 per cent).

“Since 2014, the average number of full-time employees of businesses in the SME Growth Index has fallen from 88 to 75. Taking on employees is crucial to growth, and to the economy, yet there is a disconnect between SMEs and regulatory authorities if bringing on new employees, replacing staff or dealing with staff issues is having such an impact on the productivity of the sector,” Langham said.

“Prime Minister Malcolm Turnbull, in announcing his innovation agenda, rightly pinpointed that start-ups and small business would power Australia into the next 25 years of growth.

“To fulfil the PM’s vision, SME pain points around dealing with staff issues, and the red tape and reporting burden that comes with employing staff, must be addressed. Our leaders need to recognise that many business owners don’t have the resources to deal with difficult staff issues and this makes them hesitant to employ new staff.”

Non-banks closing the gap on banks

The top three hindrances for both growth and non-growth SMEs were: high or multiple taxes (75 per cent), conditions of credit (69 per cent) and availability of credit (64 per cent).

“Given these barriers to growth, it is not surprising that the gap is closing between when it comes to SME choice of funders,” Mr Langham said.

“The number of SMEs funding growth via their main relationship bank continues to trend down (from 38 per cent to 27 per cent) while the popularity of non-banks has grown (from 10 per cent up to 22 per cent) since the Index started tracking sentiment in 2014.

“With an almost 10 per cent jump in the number of growth SMEs citing cashflow as a key barrier to business growth, and the increase in those planning to fund expansion plans via non-bank lending, the time is right for those who can step up and offer fast and effective growth funding for the SME sector,” he said.

If I were “PM for a day”

SME leaders have very clear ideas about the first problem they’d fix if they were Prime Minister, with one in four SMEs saying their first initiative would be streamlining BAS. The wish-list is as follows:

  • streamlining BAS reporting (24 per cent)
  • changing the Fair Work Act (22 per cent)
  • reducing company tax (21 per cent)
  • lightening compliance (10 per cent)
  • removing payroll tax (8 per cent)

“With the Federal Government’s Red Tape Committee due to table its report to Parliament in December, these results give all levels of government a clear indication of the actions SMEs want,” Langham said.

“Despite recent government efforts to streamline BAS, this is still SMEs’ number one area of concern, indicating more needs to be done to relieve this pain point.”

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