SME Confidence collapses as revenue falls sharply

MYOB media release
For immediate release: 29 October 2018

SME Confidence collapses as revenue falls sharply

New Zealand’s small businesses are sounding the alarm as confidence drops sharply in both the economy and their own enterprises, driven by falling revenue and a range of growing pressures.

More than half (53 percent) of the SME business operators surveyed in the latest MYOB Business Monitor Snapshot believe New Zealand’s economy will decline over the next 12 months, with nearly a fifth expecting the economy to contract sharply. Just 27 percent are expecting an improvement in the local economy in 2019.

The response is a significant reversal in confidence from just prior to the 2017 election, when 42 percent of business owners were confident the economy would improve, while 23 per cent predicted a decline.

Worst revenue since GFC

While business operators believe a range of factors are behind the fall in confidence, including uncertainty around the coalition government’s agenda and rising fuel prices, underpinning the drop are some of the worst reported earnings in the sector since the post-GFC period.

Over a quarter (26 percent) of business operators state that their revenue had fallen over the last 12 months, while just 23 per cent saw revenue rise. Forty-seven per cent said their revenue had remained static over the last year. This is the first time since mid-2011 that more businesses have reported revenue falls than gains, and again marks an abrupt turnaround from the previous survey in September 2017, when 37 percent saw their annual revenue increase and just 18 percent reported a fall.

Businesses’ expectations about their own performance next year show a similar pattern, with 27 percent expecting revenue to be up (compared to 46 percent in 2017) and 29 percent expecting revenue to fall (15 percent in 2017).

In a bright spot for the economy, mid-sized business – those with 20 or more staff – are doing better than smaller firms, with 32 percent reporting revenue is up, while 24 percent saw revenue fall.

Background of growth

MYOB General Manager Carolyn Luey says while concerning, business operators are not showing panic.

“New Zealand’s economy continues to tick along, and while more businesses are seeing their revenue fall, it is worth remembering this is against a background of a sustained period of growth,” says Carolyn Luey.

“However, we should take these signs seriously. Clearly business operators are now factoring in not only tougher economic conditions, but also a tightening of their own finances.”

“This will have a flow-on effect throughout the economy, from hiring and investment, to payment and purchase arrangements with fellow businesses.”

Key sectors hit hard

While the manufacturing sector is holding up, with 53 percent reporting year-on-year revenue gains (21 percent fall), and the finance and insurance industry is buoyant, with 64 percent saying their revenue grew and just 9 percent seeing a decline, other sectors are not faring as well.

Worst hit is the construction and trade services sector, where 47 percent saw revenue fall and just 17 percent had their revenue increase over the last year, and the retail and hospitality industry, where 33 percent say revenue fell and 18 percent reported growth.

Revenue falling in two largest cities

A third of SME operators in both Auckland and Christchurch saw revenue fall, while 19 percent of business operators in Auckland reported gains and just 15 percent in Christchurch had improved revenue. Wellington bucked the trend, with more SME operators reporting revenue gains (25 percent) than falls (17 percent).

Auckland-based businesses are expecting the declining revenue trend to deepen next year, with 38 percent of operators forecasting a revenue fall in 2019, compared to 33 percent in Christchurch and 25 percent in Wellington – the only main centre where revenue gains (31 percent) are expected to outstrip falls.

Planning for a tightening economy

Ms Luey says, with these strong signals about the economy, businesses need to plan accordingly.

“Businesses should be taking a prudent look at where they will be if this downward trend continues through next year, or external factors bring about a more abrupt reversal for the economy,” says Carolyn Luey.

“Even if your business is still going along nicely, it pays to plan for what you would do if fortunes change for your customers or suppliers. Your best bet in doing this is to get advice and do some scenario planning with your accountant or financial advisor.”

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