Modest Growth Expected By New Zealand SMEs

New insights from MYOB’s 2021 Business Monitor have revealed that more than a quarter (27%) of New Zealand’s SMEs are forecasting a slight increase in revenue over the next 12 months, indicating a sense of cautious optimism after an unpredictable year.

The latest Business Monitor, a nationwide survey of over 1,000 SMEs owners and decision makers now in its 12th year, also highlighted that 41% of local SMEs expect to generate the same level of revenue across the next 12 months, while 25% expect their income to fall.

Although finely balanced, the return to steady and positive revenue for some local SMEs marks a significant turnaround from last year’s MYOB 2020 Business Monitor, when 40% of SME operators expected their revenue to be down in 12 months’ time, compared to 21% who predicted their revenue would increase.

“Overall, this is a solid turnaround for our hard-working SMEs. When you consider the 12 months they have just been through, local business owners should be congratulated for not just hanging on but also finding hard-won opportunities in some of the most challenging trading conditions we’ve seen,” explains MYOB SME Senior Sales Manager, Krissy Sadler-Bridge.

After a number of lockdowns, SMEs based in Auckland have seen the most significant impact on their bottom line over a 12-month period to March 2021, with 44% of SME operators in the country’s largest centre reporting a fall in revenue. In comparison, businesses in Christchurch fared better than the national average, with 35% reporting reduced revenue over this time, while nearly half (48%) of Wellington-based SMEs said their revenue had remained the same and 38% saw income fall.

Profitability patterns

“When a business makes a profit, they may have the funds to develop their business further, hire more employees or increase employee benefits, or for some SME-owners, pay themselves a solid wage – making profitability a key measure of progress for the sector,” says Krissy.

“Given the toll on revenue and the subsequent impact of the past year on confidence levels, we wanted to have a closer look at profitability, which has been introduced as a new measure in the long-running MYOB Business Monitor.”

The findings highlighted that more than a third (36%) of SMEs surveyed for the 2021 Business Monitor reported the profitability of their business had declined over the three months prior to March 2021 – with 12% of this group admitting it had reduced by ‘a lot’, while one-in-five (20%) said their profitability had improved since the start of the year.

Looking ahead to the current quarter, SME expectations paint a more positive picture. Just over one-in-five (22%) said they expected an improvement in profitability – in line with increased revenue forecasts – however, more than a quarter (27%) expected their profitability will decline.

Pipeline of work narrows over next quarter

Perhaps reflected in their profitability predictions and in what is a clear indication it’s not ‘business-as-usual’ for some industries, a third (33%) of SME operators reported they have less work booked or sales in the pipeline for the current quarter, while 25% said they have more and 40% are sitting about the same.

Looking at potential pipeline boosts across the regions, the insights showed that SMEs in Christchurch have further reason to be encouraged about the quarter ahead, with 31% saying they have more work lined up, compared to 29% in Wellington and just 20% in Auckland.

Key pressure points revealed

According to the survey, local SMEs said price margins and profitability will put extreme/quite a lot of pressure on their business over the next 12 months (31%), with potential increases in the cost of fuel (30%), cashflow (29%), late payments (28%) and the cost of attracting and retaining new customers (27%), also rounding out the top pressures.

“The key pressures SMEs are concerned about when thinking ahead to the next 12 months are those we’d expect to be in mind for businesses operating on narrow margins of profitability,” says Krissy Sadler-Bridge.

“In this kind of environment with lingering feelings of uncertainty, it’s important for SMEs to focus on the fundamentals they can continue to have control over, like strong and up-to-date reporting systems, tight inventory and cashflow management, and opportunities to create operational efficiencies.”

Shifts in employment are coming

Considering the makeup of their businesses for the year ahead, one-in-10 (10%) SMEs said they intend to decrease the number of full-time employees in their business, while 12% plan to cut their number of contract staff over the next 12 months, perhaps as a result of the current pressures on business. However, over the next 12 months, 8% of SMEs intend to increase both full-time and contract staff and 17% of SMEs will increase pay rates – potentially due to the new minimum wage increase.

Also set to increase – possibly due to the complexity of the wider business landscape and the impact on international supplies and overheads – are prices and margins. In fact, over the next 12 months, 22% of SMEs are planning to increase their prices and margins, a move which could add some inflationary pressure to the economy.

“To help local SMEs negotiate the coming months, planning for further disruptions should be part of business-as-usual practices – regardless of whether the disruption is driven by an additional lockdown, disruption in the supply chain or any changes relating to the opening or closing of international borders.

“While our insights have shown that there are green shoots for some SMEs when it comes to profitability, pipeline and revenue, with some pressures and concerns still looming large – in what is still a fragile operating environment – I’d encourage consumers to continue to focus on supporting local business however they can,” says Krissy.

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