SME Confidence Rebounds as Sectors Show Growth

SME Confidence Rebounds as Sectors Show Growth

New Zealand’s underlying economy appears strong with rising numbers of small and medium sized businesses reporting increased confidence and revenue growth according to leading accounting software developer MYOB.

The latest MYOB Business Monitor research of more than 1,000 local SMEs, conducted for MYOB by Colmar Brunton, saw confidence in the economy strongly improving in the SME sector, up from net negative 30 per cent in September 2015, to net positive 5 per cent in the latest survey.

Businesses in the logistics sector (net positive 21 per cent), retail and hospitality, and the trades (both net positive 10 per cent) are particularly confident about the state of the economy in 2016. The widely-reported impact of failing global dairy prices saw those in the primary sector (net negative 23 per cent) buck the positive trend, along with Christchurch-based business operators (net negative 7 per cent), who are managing the transition to the rebuild’s plateau phase.

MYOB New Zealand General Manager James Scollay says that the underlying performance of the SME sector has been strong over the last year, which bodes well for overall future economic conditions.

“It’s not surprising that we have seen such a turnaround in confidence levels, given how well many of our regions and key industries have performed over the last 12 months,” says Mr Scollay. “Whereas business operators were heading into Christmas last year with a good degree of caution, what they’ve actually found is a general improvement in their revenue and considerable stability in the local economy.”

Revenue increasing across the country

Over the 12 months to March 2016, 37 per cent of SME business operators across the country reported an increase in their revenue, up from 30 per cent in the September Monitor, while just 21 per cent reported a revenue decline, down from 23 per cent.

In particular, Wellington-based businesses saw a significant improvement in performance, with over a third (35 per cent) highlighting revenue growth in the last 12 months, up from just over a quarter (26 per cent) last year. Growth is also spreading into the regions, with the second highest revenue performance (36 per cent) in the areas outside the major centres. In September 2015, a larger proportion of businesses in the regions saw revenue fall (29 per cent) than grow (28 per cent).

Centre/Region Year to Mar 16

Northland 38% 30% 27% 29%

Auckland 39% 37% 18% 18%

Waikato 31% 23% 28% 36%

Bay of Plenty 30% 36% 24% 23%

Hawkes Bay 42% 16% 14% 32%

Manawatu/Wanganui 26% 36% 18% 25%

Wellington 35% 26% 22% 27%

Christchurch 34% 30% 23% 29%

Otago/Southland 47% 23% 14% 27%

revenue up

Year to Sep 15

revenue up

Year to Mar 16

revenue down

Key sectors highlight continuing growth trend

Retail and hospitality businesses have backed up surging revenue in 2015 with another strong performance, as 44 per cent of SMEs in the sector say their revenue has improved in the latest survey – up from 39 per cent in September. The trades industries are showing an even greater lift with revenue improvement across the sector also at 44 per cent, up from 30 per cent in September. Other strong performers are the business, property and professional sector (40 per cent), manufacturing (31 per cent) and the financial sector (32 per cent).

“While we are seeing something of an improvement in the primary sector, with the percentage of

businesses seeing their revenue improve increasing slightly in the last six months, the number of operators in the industry who are reporting falling revenue is cause for real concern.” says Mr Scollay. Forty-three per cent of primary sector SMEs reported a revenue fall in the year to March 2016.

Steady growth expected in year ahead

New Zealand’s SME operators expect revenue growth to remain consistent over the next 12 months. Thirty-seven per cent forecast improved returns in 2016 in the latest Monitor survey, while fewer (16 per cent) expect revenue to fall.

“That growth is expected to be fairly even across the country, with Auckland businesses forecast to be somewhat ahead of the curve, on 40 per cent,” says Mr Scollay. “All of our key sectors are expecting strong revenue performances in the next 12 months, with only those in the primary sector expecting declines to outstrip gains.”

The finance and insurance industry is the most bullish on revenue in 2016, with 49 per cent forecasting an increase in income, followed by the retail/hospitality sector (46 per cent), manufacturing (44 per cent) and the trades (42 per cent).

Strong start to the new financial year

Local SMEs already have plenty of work booked for the new financial year, with 38 per cent reporting an increase in sales or work booked for the next quarter. As the construction boom continues in Auckland and $100 million per week is being spent on the reconstruction of Christchurch, the trades are in high demand.

Over half (54 per cent) of business operators in the sector have more work on in the next three months. The manufacturing industry is also starting strongly, with 48 per cent seeing work and sales increased in the

coming quarter. Forty-three per cent of businesses in the transport and logistics sector will also have a busier than usual start to the new financial year.

Modest jobs growth – but strong in some sectors

Despite performing well, SME operators have remained reasonably cautious on business expansion. Just 10 per cent of the sector will increase the number of full time employees they have on staff in the coming 12 months, and 12 per cent will up their part-time and casual roster.

To cope with expected demand, however, over a quarter (26 per cent) of all local SMEs in the manufacturing industry will be looking for more full time staff and 19 per cent plan to increase their part-time workforce. Jobs growth will also be strong in the trades, with 18 per cent offering more full time roles, ad 17 per cent increasing part-time positions.

Growth pressures becoming evident

“As highlighted recently in both the primary sector and the trades and construction industries, cash flow is the leading concern of all SMEs, with a quarter expecting it to put stress on their business this year,” says James Scollay.

“Other key pressures are also common in businesses looking to manage higher levels of growth. Currently, competitive activity and the ability to keep attracting new customers are most on the minds of local small business operators.

“Overall, our latest MYOB Business Monitor shows the SME sector in very good shape, and confident about both their own prospects and the wider economy.

“There are some downside risks, however, including the wider impact of the dairy downturn, which we have highlighted previously, and the pressures generally associated with managing periods of growth.

“Despite the underlying strength, in this market we are recommending SMEs keep a close watch on their key performance metrics, like cash flow, age of debtors and forward sales, while making sure their systems are robust and up-to-date. And, if you need any help, your accountant or financial advisor is always the best source of advice for helping manage any kind of trading environment.”

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