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Australian small businesses feel insecure about their financial health in the current economic market, according to CreditorWatch data.
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SMEs not ‘confident’ in financial health, survey reveals
29 July 2024
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The credit reporting bureau found only 45 per cent of small business decision makers rated their business’s current financial health as ‘good’ or ‘very good’ in their business sentiment survey released July 24.
The confidence percentage of small businesses was compared to the business confidence of medium and large businesses.
CreditorWatch CEO Patrick Coghlan said 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.
The survey results found 76 per cent of medium sized businesses rated their current financial health as ‘good’ or ‘very good’, followed by 82 per cent of large businesses.
“Small businesses are significantly less optimistic about their financial performance and the current business climate compared to their larger counterparts,” CreditorWatch said.
CreditorWatch’s recent results from the ‘June business risk index’ mirrored the survey’s findings.
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The business index highlighted the average value of invoices held by businesses has fallen to a record low, down 49.9 per cent since last year.
This significant drop can be attributed to, “decreased order values as businesses are forced to reduce inventory due to higher prices and declining demand in the economy,” CreditorWatch said.
This is also linked to the upward trend of invoice payment defaults since mid-2021, as small businesses find it difficult to pay their suppliers despite lower order values.
Coghlan said with the plummeting of invoice values and payment defaults rising, industries such as hospitality are suffering most.
“Industries like hospitality are hit hardest due to their reliance on discretionary spending,” he said.
“Smaller businesses, operating on tighter margins and with depleted cash reserves, are struggling the most.”
In comparison to 45 percent of small businesses rating their financial health as ‘good’ or ‘very good’, 19 per cent of small businesses said their performance was ‘poor’ or ‘very poor.’
Within this, only 5 per cent of medium businesses and 7 per cent of large businesses rated their financial health as being ‘poor’ or ‘very poor.’
The research also detailed what sectors are feeling more optimistic about their financial health in the current economy.
The financial and insurance sector was the most positive about their current financial health, with 68 per cent of decision makers rating it as ‘good’ or ‘very good.’
This was followed by only 21 per cent of businesses in distribution and travel, 14 per cent of hospitality and retail businesses and 13 per cent of production businesses rating their current financial health at ‘poor’ or ‘very poor.’
CreditorWatch said these results are similarly reflected in the latest business risk index.
“The index shows the outlook for businesses in the hospitality industry has worsened, 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.”
Coghlan said the survey results speak for themselves in how small businesses are faring in the current economic environment.
“Businesses are really hurting,” Coghlan said.
“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.”
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