SME confidence continues to dive

28 Mar 2019

  • 48% of NZ’s business operators expect economy to decline this year
  • Returns for SMEs softening, pressures rising

Almost half (48%) of the country’s SME sector, made up of more than 500,000 businesses, expects the New Zealand economy to worsen in the next 12 months, according to the latest MYOB Business Monitor survey of more than 1,000 local business operators.

Reflecting an uncertain global picture and increasing frustration with the direction of the local economy, SME confidence continued to dive in the March MYOB Business Monitor, down 15 points from a net balance score of -14 in the March 2018 survey to -29*.  Only 19% of SMEs believe the economy will improve, versus 48% who believe it will get worse.

In the latest survey by leading accounting software provider MYOB, business operators in the finance and insurance sector were the most pessimistic about the economy (-46), along with those in the business and professional services industry (-33).

While all sectors are in negative territory, business operators in the manufacturing and wholesale industry have the highest level of confidence in the economy over the coming year (-15), followed by the retail and hospitality sector (-18).

In the main centres, 42% of business operators in Wellington, 47% in Auckland and 51% in Christchurch expect the economy to decline in the coming year.

MYOB Country Manager, Ingrid Cronin-Knight said a range of issues were likely to be weighing on SME confidence at the moment – from threats to international security, the US/China trade war and the ongoing BREXIT debate, to uncertainty around changes to the local tax regime.

“Alongside domestic and international issues, business operators also look to their own revenue trends as indicative of the wider economy,” she said.

“Our research has seen a slowing in revenue growth with fewer SME operators reporting increased earnings in the last 12 months.”

Softening revenue

In the latest Business Monitor, 31% of business operators reported revenue increases – down from 36% in March 2018, while 21% saw earnings fall (20% in March 2018).

This trend has been most evident in Auckland – home to over a third of all local SMEs – with more business operators (27%) saying their revenue fell in the last 12 months, compared to those who made revenue gains (25%). By contrast, Wellington business operators had a strong year, with 44% enjoying increased revenue and just 12% seeing a decline in earnings.

Growth has been strongest in the manufacturing and wholesale sector with 39% reporting revenue growth and only 12% seeing revenue decline, while the construction and trades sector remained steady (30% saw revenue increases, 18% experienced declines). The retail and hospitality trade did not fare as well in the last 12 months, with the proportion of business operators reporting revenue falls (35%) greater than those reporting increases (28%).

As a result, SME business operators are tempering their earnings expectations for the year ahead. Nearly a third (32%) are forecasting that revenue will improve in the next 12 months, compared to the 38% of business operators who were expecting growth in March last year.

Near-term picture positive

Ms Cronin-Knight said even though SME operators are concerned about the economic outlook, they are continuing to invest in their businesses and seeing positive results in the short term.

“While slightly down on this time last year, businesses are reporting more work in the pipeline for the next three months,” she said.

“This is reflected in their positive hiring intentions and the likelihood of pay rises across the sectors – although these may be offset somewhat by inflation, as more businesses look to improve their margins.

“Kiwi business owners are resilient. They just tend to get on with it – showing confidence in their own businesses even as they expect local trading conditions to get worse.”

Just over a quarter (27%) of businesses report more work in the pipeline for the second quarter of 2019, while almost a fifth (19%) say they have less work on for the next three months. Strongest is the manufacturing and wholesale sector, with over a third (34%) saying they have more work in the pipeline.

Almost a quarter (23%) of SME operators plan to pay their staff more in the coming year, and 9% say they will take on more staff. To offset rising costs, a quarter (25%) plan to increase their prices.

Pressures on the rise

“Although businesses are performing relatively well, we are concerned by the reported increase in a number of key pressures,” said Ms Cronin-Knight.

“In particular, rising fuel costs, reduced margins and constrained cashflow are all weighing more heavily on local business operators.

“As these pressures – particularly cashflow – continue to build, it is a good idea for businesses to review their business management and reporting systems to ensure they are getting the information they need to make timely decisions and connect with a business advisor to ensure their focus remains on essential activities to improve their cashflow.

“Ultimately, in the face of growing headwinds, as a country we need to stop being complacent about the prospects for the future and allowing our economy to drift along in the belief business owners will continue to make the best of it.

“Our local SMEs deserve some clear direction and positive moves to make the environment more conducive to business growth,” Ms Cronin-Knight said.

-ends-

*Editors’ note: the net confidence figure represents the proportion of respondents who believe the economy will improve (19% in the latest survey), minus those who believe it will decline (48%), leading to a net balance score of -29.

 

For further comment or other information please contact:

Rebecca Huang, MYOB NZ Public Relations Consultant

M: 021 1122 720 / E: rebecca.huang@myob.com

 

Gerard Blank, The Agency Communications Limited Director

P: 03 341 5841 / M: 0275 243 629 / E: gerard@theagencynz.co.nz

 

About MYOB

MYOB (ASX: MYO) is a leading cloud based business management solutions provider. It makes business life easier for approximately 1.2 million businesses across Australia and New Zealand by simplifying accounting, payroll, tax, practice management, CRM, websites, job costing, inventory and more. MYOB provides ongoing support via many client service channels including a network of over 40,000 accountants, bookkeepers and other consultants. It is committed to ongoing innovation, particularly in cloud computing solutions, and in 2015 was awarded the BRW award for the most innovative large company for 500+ employees and placed 2nd in BRW’s Most Innovative Companies Award list across all categories nationally.  For more information, visit myob.co.nz or follow @MYOB on Twitter.

About the MYOB Business Monitor

The MYOB Business Monitor is a national survey of 1,000+ New Zealand small and medium business owners and managers, from sole traders to mid-sized companies, representing the major industry sectors. It has run since 2009, commissioned to independent market research firm Colmar Brunton. This most recent survey ran in February/March 2019. The Monitor researches business performance and attitudes in areas such as profitability, cash flow, pipeline, technology usage and the government. The weighting of respondents by both geographical location and sector is based on overall market proportions as established by Statistics New Zealand and is drawn from an independent survey group, which includes both MYOB clients and non-clients.