Eighty-one per cent of small and medium sized businesses (SMEs) owners experienced cashflow uncertainty in the past 12 months and 47 per cent believe their cash flow situation has worsened over the year. These are the findings of the latest Bibby Barometer – a bi-annual small business sentiment survey launched this month.
The major issues impinging on cash flow include declining margins (25 per cent), government red tape, compliance and tax administration (24 per cent), customers making excuses for slow payment (23 per cent), or trouble getting payment from large companies or government departments (20 per cent).
Mark Cleaver, Managing Director for Australia and New Zealand, Bibby Financial Services said, “The real ball and chain that hobbles small business expansion and puts a brake on Australia’s overall employment growth is cash flow.”
“A key contributing factor to cash flow problems is the length of time that small businesses must wait to be paid. Forty-two per cent say it is taking longer to get paid compared to 12 months ago,” Mr Cleaver said.
The Bibby survey found 34 per cent of businesses are waiting to be paid on outstanding invoices that are months overdue, and a quarter of small business owners are suffering from drawn-out payment where their clients have negotiated to pay in instalments. At the other end of the spectrum, suppliers have reduced their terms of trade so that 21% of businesses now have to pay earlier.
Looking ahead, many small business decision makers are pessimistic about payment terms. Forty-four per cent expect the length of time they must wait to be paid will increase over the next half year. Most, though, (51 per cent) expect the time it takes them to be paid to remain the same.
The survey found most small business owners (74%) intend to take actions over the next 6 months to improve their cash flow situation. Twenty-one per cent intend to conduct a cash flow forecast, while 18 per cent of small business owners plan to use their personal finances or plan to take out or increase their overdraft (17%). Fifteen per cent intend to delay making payments to their suppliers in order to improve their cash flow situation.
Challenges for small businesses
Along with cash flow, reduced consumer spending, the pressure of deadlines and high fuel costs are additional challenges for people running their own business. These pressures have increased stress levels among SMEs in Australia. Fifty-three per cent feel more stressed than they were a year ago, up from 44 per cent six months ago.
“Six months ago high fuel costs was a top challenge for SMEs and now that has given way to worries about consumer spending. Low retail sales are making business owners querulous about the future, whether they sell directly to the public or deal business-to-business,” Mr Cleaver said.
“Economic uncertainty contributes to small business concern according to our survey, with just over half of small business owners more concerned about global economic conditions than they were a year,” he said.
“With the Reserve Bank continuing to lower interest rates, it is apparent from our research that a drop in interest rates is not creating the same confidence boost that it did a year or two ago. Only 48 per cent of business proprietors believe falling interest rates will have an impact on their businesses in the coming 12 months. This compares with 51 per cent six months ago, while 20 per cent believe the falling interest rate trend is negative for their business,” Mr Cleaver commented.
Finding sufficient funding will be a major concern for small business owners over the next 12 months. Twenty-six per cent will be looking to pay down an existing loan and 23 per cent intend to refinance existing debt. On the flip side, 19 per cent intend to seek new funding for growth and 18 per cent will be looking for funding to provide working capital.
The Bibby survey revealed that the majority of small business owners (71 per cent) have business finance and as many as 33 per cent have this finance secured to real estate.
The majority of Australian small business decision makers in the survey (65 per cent) would consider a non-bank lender if their business required credit, including 7 per cent who are already using these types of institutions for their business finances. Trust (31 per cent) and cost (22 per cent) are the key barriers to using non-bank lenders.
“Business owners need to become increasingly aware and confident of non-bank finance options, such as debtor finance, which doesn’t require real estate as security and reimburses a company the moment it raises an invoice, instead of having to wait until the customer pays.
“Debtor finance or invoice finance allows a business to typically convert up to 85 per cent of the value of their invoices into cash, usually within 24 hours of an application being made. Once payment has been received from the debtor, the remaining 15 per cent, less a service fee, is returned to the business. The huge advantage of debtor finance is that it provides a business with an immediate and on going cash supply, which is linked to the level of sales. For this reason, it is a great tool for growing businesses,” Mr Cleaver said.
The Bibby Barometer Index
Increased stress, economic uncertainty, cash flow difficulties and a poor outlook for business growth have pushed the Bibby Barometer of SME health two points lower in the past six months. The index, which tracks these measures, remains well above the level it sank to in February 2012.
The fifth Bibby Barometer survey of small and medium sized businesses was carried out by Galaxy Research in July, compiled and released in August 2013. bibby.com.au
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