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Manufacturing shows "renewed vigour" among SME gains

29 September, 2014

Australia's SME sector is consolidating the gains of the last 12 months, with one of the highest revenue performances in the last three years and those experiencing revenue declines falling to a five year low, according to the latest research from Australia's leading accounting software provider.

The September 2014 MYOB Business Monitor Report highlights a relatively stable level of revenue growth among local SMEs and a continuation of the downward trend in falling revenue. Under a third (31 per cent) reported a decrease in annual revenue in the 12 months to August 2014, and 21 per cent reported an increase. A further 42 per cent reported a steady level of revenue over the past 12 months.

Looking ahead to 2015, almost a third of business operators (32 per cent) expect to see revenue increase in the next 12 months, though down slightly from 34 per cent in the March survey. A reduced number of businesses also expect revenue to decline in the year to August 2015, down from 22 per cent in March to 18 per cent in the latest survey.

Steady business confidence

Business confidence also remains relatively steady, with 24 per cent of SME operators expecting the economy to improve in the next year – up slightly from 23 per cent a year ago.

Most improved was the business pipeline, with 36 per cent of business operators reporting more work or sales booked in the next 12 months. This figure has trended steadily up over the last year, from 28 per cent in August 2013, and 33 per cent in the March 2014 Business Monitor.

MYOB CEO Tim Reed says, "We are very pleased to see the latest revenue results for Australia's SMEs continuing to move in the right direction. Although the latest Business Monitor reflects that running a small business in the current economic environment is not easy, many local operators are beginning to see their hard work pay dividends.

"This survey again reinforces how resilient our SME community is and underscores how important they are to the economy as a whole. It is particularly heartening to see many more businesses looking forward to an improved end to the year, and confident about what 2015 will bring.

Manufacturing on road to recovery

"It's also pleasing to see the manufacturing sector, which has had a pretty tough road to travel in recent years, showing renewed vigour."

Manufacturing has seen a significant turnaround in the last six months, with the proportion of businesses seeing revenue decline falling from 43 per cent in the March Monitor to 32 per cent in the latest survey. Those experiencing revenue gains rose to 29 per cent – the highest level across the sectors. A quarter of businesses in the retail and hospitality sector were likely to see revenue gains, though 38 per cent in the industry reported a fall.

Just 14 per cent of businesses in the agriculture, forestry and fishing reported increasing revenue, down from 26 per cent in March. The finance and insurance industry has also fallen off the highs it saw in March, when 33 per cent reported revenue gains. Only 20 per cent of businesses in the sector saw revenue increase in the latest Monitor, though 64 per cent reported a steady revenue performance.

In the next 12 months, the finance and insurance industry is expecting the highest revenue growth levels (36 per cent), with manufacturing and wholesale (35 per cent) and agribusiness (34 per cent) also expecting solid improvements.

Of the mainland states, SMEs based in Western Australia (23 per cent) and Queensland (23 per cent) were most likely to see revenue rise. However, the environment in Queensland is currently the most volatile for business, with 41 per cent reporting a revenue fall.

In the year ahead, 37 per cent of business operators in Queensland expect revenue to improve, followed by those in Victoria (35 per cent) and New South Wales (32 per cent).

Leading concerns

Pain at the pump remains the major pressure for a third of SMEs – reflecting a consistent concern about the cost of fuel since March 2011. Other key pressures include attracting new customers (32 per cent – up from 26 per cent in the last wave of the Monitor), cash flow (30 per cent), profitability and price margins (28 per cent) and the timing of customer payments – another rising concern, up from 20 per cent to 27 per cent.

Of the industries, operators in agriculture, forestry and fishing felt the most pressure from fuel prices (59 per cent). Operators in manufacturing and wholesale felt the most pressure from attracting new customers and competitive activity.

Businesses remain focused on keeping or acquiring customers.

The key areas of increased investment for SME operators for the next 12 months are:

1. Customer retention strategies – 27 per cent

2. Customer acquisition strategies – 26 per cent the number or variety of products or services offered by the business – 26 per cent

3. Prices and margins on the products or services sold – 25 per cent

The top three priorities have been relatively consistent over the last three years, through six consecutive waves of the Business Monitor.

"There's some encouraging news in this latest MYOB Business Monitor," says Reed. "But it is worth highlighting the continued challenges facing the SME sector."

"Small businesses are having to work hard for every customer and every sale, while feeling the squeeze from both external pressures like the cost of fuel and the high dollar and market conditions, including competition, margins and cash flow.

"There are still more small businesses reporting declining revenue than seeing revenue grow. In this environment, where the revenue outlook is improving but is not yet strong, we need to remain focused on doing everything we can to support our SME community."

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