SME confidence crashes, over half predicting revenue hit
14 Apr 2020
The confidence of New Zealand’s 400,000 plus SME operators took a sharp decline in March, as the coronavirus pandemic, stock market crash and oil price war roiled the local economy.
In the latest MYOB Business Monitor survey*, the confidence of SME business operators in the economy lurched from a net negative 60% on 2nd March to net negative 96% on 17th March.
A cascading series of events, from the spread of COVID-19 infections in New Zealand, which climbed from just two to 155 over the course of the survey, record falls on international share markets and the announcement of a country-wide lockdown battered SME confidence throughout the month. By the time the Government stepped in to announce its $12.1 billion emergency package on 17th March, negative sentiment had reached almost 100% – unheard of in the survey’s 10 year history.
MYOB NZ country manager Ingrid Cronin-Knight says March was extremely challenging for the SME sector, as the full weight of the crisis became evident.
“The confidence of SME operators throughout the country understandably plummeted in March as they digested a growing range of bad news,” says Ms Cronin-Knight.
“But perhaps more concerning than the confidence levels, are the revenue expectations for the 2020/2021 year reported by survey respondents.
“By the end of the month, just over half of our respondents were expecting to lose money in the coming year.”
Significant immediate effect on revenue
Revenue growth over the last year for the SME sector was already finely balanced, with 26% of SMEs reporting revenue growth and 26% experiencing falling revenue in 2019/2020. However, businesses saw an immediate hit in annual revenue from the coronavirus crisis, with 31% of the businesses responding later in the month reporting that their annual revenue was down.
Looking ahead to 2021, 40% of SME operators are forecasting a fall in revenue, while 21% believe it will be up. Again, the approximately 400 business owners surveyed after 16th March were more conservative in their forecasting, with 51% expecting revenue to be down over the coming year, and just 12% expecting growth.
Hardest hit will be the finance and insurance sector, with 59% projecting falling revenue, and the tourism sector, in which 56% expect revenue to fall. Over two-fifths (43%) of both the retail and hospitality and primary sectors are predicting their revenue to contract this year.
Hassle-free Tours managing director Mark Gilbert says that the impact on businesses like his is huge, with 98% of his business unable to operate while the borders are closed.
“We mainly deal in international visitors, largely cruise ship passengers,” says Mark Gilbert. “Even when the borders do re-open the percentage of customers we will regain is unknown.”
“Our tours will be in hibernation through to the start of summer, although parts in the business will stay closed until summer 2021.”
In response to the COVID-19 crisis, Hassle-free Tours is planning to restart local tours, charters and functions, which they stopped doing several years ago.
Mr Gilbert says they are lucky that they have been able to significantly cut back overheads, renegotiate bank loans and take advantage of the government’s wage subsidy scheme.
“The situation is evolving so quickly we can’t predict the next 6 – 18 months. However, we are planning for all possible scenarios.”
“We will come through this, albeit as a much smaller business. We will likely go from tens of thousands of customers to just thousands, which is gutting considering in December last year we were on track for our best year yet.”
Q2 activity contracts
Even before the country entered the four-week lockdown, SMEs indicated that work was drying up, with 31% reporting less work in the pipeline and just 20% expecting activity to increase over the next three months.
The local finance sector was particularly hard-hit following the end of the longest bull market in US history, with 53% of business operators reporting less work booked for the quarter. Only the agricultural industries largely bucked the trend, with 64% expecting a steady workload over the next three months.
Effects on employment
While the Government’s payroll subsidy may be the key for many in the SME sector to hold onto staff as long as they can, 10% of operators say they intend to reduce their business’ headcount over the coming year. In sectors significantly affected by the pandemic – even prior to the lockdown – that number is higher, with 16% of manufacturers, 16% of tourism operators, 15% of exporters and 14% of retail and hospitality businesses preparing to downsize this year.
Around 8% also intend to reduce pay – climbing to 11% for businesses interviewed in the second half of March. Hardest hit are likely to be employees in the finance sector, with over a fifth (21%) of SMEs intending to cut wages and salaries.
Essential to focus on fundamentals
Ms Cronin-Knight says while we may still find SME’s estimates were conservative as the full impact of the lockdown and the broader effects on the global economy become apparent, there are still things local operators can do to protect their own business.
“The leading pressures SMEs identified for the year ahead are margins, cashflow and late payments,” says Ms Cronin-Knight. “And it is right that business operators should be focused on these areas, as they will be absolutely fundamental over the coming months.”
“The more you can do to protect the flow of cash into your business, the more likely you are to be able to keep trading, support your operation and – as much as possible – keep providing employment for your team.”
“There’s absolutely no doubt how hard it is out there at present and how far, for many businesses, we have gone into unchartered territory. It is crucial that businesses have a good understanding of the challenges that they are facing and are putting themselves best position to be able to successfully navigate it.”
*The MYOB Business Monitor surveyed 1,000 SME operators from across the country and was conducted from the end of February to 24th March 2020.
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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 March 2020. 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.