Fickle tastes and diminishing customer loyalty are the biggest threats to Australian business, according to new research by QBE.
QBE’s Business Risk Report reveals that Australia’s two million small and medium-sized businesses do not necessarily worry about rising interest rates but are terrified that customers may turn on them at a moment’s notice.
The research also found that more than one in three small businesses see losing clients as the biggest risk to their cashflow, compared to only one in 20 who feared a power cut, fire or adverse weather event.
The findings are important because small business is fundamental to the Australian economy, contributing more than $343 billion to the economy every year, and employing more than seven million people. About 70 per cent of all workers in the private sector are employed in small business, rather than large national or multi-national companies.
Other key risks to their cashflow identified in the research include customers refusing to pay invoices on time (24 per cent), rising costs (20 per cent) and clients going bankrupt (six per cent).
QBE Executive General Manager, Intermediary Distribution, Jason Clarke said customer loyalty was one of many contributing factors to running a successful business.
“Australian companies need to recognise that customers today aren’t necessarily as loyal as their parents’ or grandparents’ generations,” Clarke said. “This means companies need to work harder to earn customer loyalty. Companies that don’t get this right are at a higher risk of losing their customer base.”
Half of all businesses fail in the first three years of operation and poor cashflow is cited as a factor in 40 per cent of business failures.
“It’s well known that cashflow is the make or break of business but many of the blockers to cashflow are unpredictable,” Clarke said.
“Blockers can result from natural catastrophes and human errors – human error actually causes more than a quarter of all problems. It makes sense for entrepreneurs to mitigate the risks they can control,” he added.
The research shows that the concerns of businesses are impacted by their type of offering, with rising costs more of a concern for retailers (38 per cent), than it is for manufacturers (19 per cent), offices (18 per cent) and home works (18 per cent). Despite identifying a number of risks to their survival, close to half (43 per cent) of SMEs have never heard of business interruption insurance and, alarmingly, one in five (19 per cent) have no insurance at all.
The research also reveals that trust issues are more acute for millennial business owners, with their biggest single worry being that clients will not pay invoices on time. The majority of Australian SMEs (56 per cent) are run by Millennials or Gen X.
“Certainty in an uncertain world is acutely felt by small businesses who must plan their futures without the breadth of support traditionally enjoyed by larger organisations,” Clarke concluded.