The survival of one in five Australian SMEs are threatened by cash flow issues, says Greg Charlwood, managing director of factoring business Bibby, and the rate is growing
In the past 12 months, the survival of 22 per cent of small to medium enterprises (SMEs) was threatened due to cash flow shortages, according to the latest Bibby Barometer Small Business Survey.
The survey found that Australia’s small business owners are increasingly concerned about the current global economic situation, with around half (47 per cent) more concerned than they were a year ago.
A quarter of decision makers had difficulties meeting liabilities to suppliers on time, and 24 per cent had difficulties making their tax payments. The majority of SMEs were also worried about interest rates, with 54 per cent believing that an interest rate hike of 25 basis points will impact or seriously impact their business.
Conducted in February 2012 and the second of its kind, the Bibby Barometer Small Business Survey is a national study run twice yearly, surveying primary decision makers in over 200 non-retail SMEs.
From the overall Bibby Barometer Small Business Survey, a Bibby Barometer Index was constructed which measures small business expectations for a healthy business environment - based on intention to invest in the business, expectations of sales growth, ease of managing cash flow, business confidence, and levels of business stress. Since the previous reading in July 2011, this Index shows that small business expectations have decreased overall by 6 per cent.
Greg Charlwood, Bibby Financial Services managing director, commented: “Our second Bibby Barometer Index has revealed that expectations regarding sales growth have deteriorated and cash flow is more difficult. It is clearthat current global economic conditions are not only impacting large corporations but also filtering down to Australia’s SME sector.
“According to the Bibby Barometer Small Business Survey, managing cash flow (39 per cent) ranks at the same level as three other major business headaches: staffing issues (40 per cent), a lack of time to enjoy family life (40 per cent), and Government red tape and tax administration (39 per cent).
Federal Cabinet is currently considering a package of reforms for small businesses, including tax relief to commence in July 2012, in addition to other measures to reduce red tape and provide exemptions from unfair dismissal laws.
“Given the Bibby Barometer Small Business Survey findings, we believe that these measures are indeed desirable. The proposed package of reforms will start to address the major small business headaches identified in our survey, and will provide some much needed relief for the SME sector,” he said.
Payment time
A contributing factor to business cash flow problems is the length of time small businesses are waiting to be paid, with 49 per cent of small business decision makers experiencing delays in payment, and 27 per cent experiencing bad debts in the past 12 months, according to the survey.
Charlwood says, “Not surprisingly, many remain pessimistic about their future payment terms. Over a third (36 per cent) expect the length of time they must wait to be paid will increase further in the coming quarter.”
Terms rankle
“The majority of small business decision makers are of the opinion that banks require too much security these days. As a result, many small businesses are looking beyond the traditional sources of funding, with 34 per cent more likely to seek credit from sources other than banks in the next 12 months,” Charlwood said.
The Bibby Barometer Small Business Survey found that small businesses with 10 to 19 employees (63 per cent) and those with turnover of $1m or more (64 per cent) are most likely to feel that the banks require too much security.
“It is to be expected, in these circumstances, that factoring is growing in popularity, since it gives SMEs almost immediate finance when they bill their clients - without needing to provide their home or commercial property as collateral,” he concluded.
