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Crunch time: SME cashflow concerns grow as inflation continues to bite

Based on recent inflation increases, more than a third (38%) of local SME leaders could only sustain their business for up to six months before they would need to dip into their personal finances or seek additional finance, according to new data from the 2023 MYOB Business Monitor.

The nationwide survey of 1,000+ SME owners, directors and managers from across New Zealand highlighted that the ongoing impact of inflation and the Reserve Bank’s efforts to control it are taking its toll on local businesses.

A third (33%) of local SME decision-makers are ‘quite’ or ‘very’ concerned about the impact increasing interest rates will have on their business’ finances, and just over a fifth (21%) say their current cashflow levels are poor or very poor, while 44% say they are satisfactory and 35% say their cashflow levels are good.

On average, SMEs estimate their business overheads, such as rent and electricity, have increased by over $1500 per month in the last year, with just 13% of SMEs saying they haven’t seen their costs increase in the past 12 months.

MYOB spokesperson, Jo Tozer, explains that inflationary pressures continue to dampen SME confidence, which has remained stubbornly low over the past year.

“Across the country, SME leaders have pointed to rising inflation and the high cost of living generating the most pressure, with three quarters saying it was having the biggest impact on their level of confidence,” says Jo. “Likewise, the other major influences on SME confidence are also inflation-related, including the cost of fuel (64%) and rising interest rates (61%).”

“As a result, confidence levels amongst SMEs have remained largely unmoved since our last Business Monitor in March 2022, but these are worryingly close to the historic lows we saw immediately after the outbreak of the COVID-19 pandemic,” Jo adds.

More than two-thirds (69%) of local SMEs believe the New Zealand economy will decline in the next 12 months, one percentage point more than the same time last year (2022: 68%), with 30% believing that decline in economic activity will be significant. Just 16% of SME decision-makers expect the economy to improve – the same proportion as seen in the 2022 Business Monitor, and 13% believe it will remain the same.

Low growth and constrained profitability

“Tough trading conditions and falling consumer confidence have also seen local SMEs struggle to achieve revenue growth over the last year, and profitability in the last quarter has become particularly constrained,” says Jo.

Just over one-in-five (22%) local SMEs saw their revenue improve over the 12 months to March 2023, while more than a third (34%) saw revenue decline. The majority - 43% - say their year-on-year revenue has remained static.

The past quarter has also seen profitability restricted. Forty-five percent of SMEs report that their business has become less profitable over the last three months, while 41% say it has stayed the same. In contrast, just 13% of SMEs say their business has become more profitable over this time.

“In this sort of low growth environment, where businesses are dealing with increasing cost pressures, SMEs are finding themselves with dwindling cash reserves, and becoming more vulnerable to a growing number of external shocks – from natural disasters to a downturn in the economy,” Jo explains.

“With these risks and pressures in mind, heading into the new financial year is a good opportunity for SMEs review their fundamentals – cashflow, debt levels and the stock they are carrying – and use this as a time to reset their businesses for a tighter market. Working with their accountant, bookkeeper or financial advisor now to start putting in place the strategies could prove vital to their survival if there was further downturn in the economy.”

Risk of recession growing

On top of the most recent StatsNZ GDP data showing the economy shrank by 0.6% in the final quarter of 2022, the falling profitability and revenue amongst SMEs could also point to a possible contraction in activity for the first quarter of 2023.

According to MYOB’s Business Monitor, recession warnings are flashing red for the SME community, with 80% polled saying they are concerned about the risk of the New Zealand economy entering a recession in 2023. If this occurs, the survey insights show it could generate a wave of cost-cutting among SMEs, which will further limit local growth.

When asked what changes they would make to their business plans or operations if New Zealand was to enter a recession, the Business Monitor insights revealed:

  1. 38% would implementing strict cost controls across the business

  2. 29% would dip into personal savings to keep trading

  3. 18% would reduce marketing spend to save money

  4. 14% would freezing wages/salaries

  5. 14% would need to increase the time they take to pay bills and suppliers

  6. 11% would close the business altogether

“This is a critical moment for many local SMEs, as they face the risk of recession with very little in the way of resources to give them a buffer against a major downturn in trade. Rampant inflation, a significantly disrupted supply chain and recent extreme weather events have all taken their toll on SME reserves – particularly in sectors like agriculture, hospitality and retail,” says MYOB’s Jo Tozer.

“SMEs give a lot to our local communities and they are going to need a great deal of support this year, so we’d encourage policy makers to give this careful consideration before implementing any changes which could add to the already growing range of costs to SMEs. For the rest of us Kiwis, if it is within your means, please continue to buy local to support our diverse and valuable network of small and medium businesses.”


About the MYOB Business Monitor

Running since 2009, The MYOB Business Monitor is a national survey of 1,000+ New Zealand small and medium business owners, managers and directors, from sole traders to mid-sized companies, representing the major industry sectors. The Monitor researches business performance and attitudes in areas such as profitability, cash flow, pipeline, technology usage and the government.

The 2023 MYOB Business Monitor survey was conducted by the Online Research Unit – a division of Kantar. The survey comprised a national sample of 1017 New Zealand business owners, managers and directors (operators) and was conducted from February 1st – March 7th 2023. All data has been weighted by industry type, location and number of employees, which are in line with Statistics New Zealand (New Zealand Business Demography Statistics: At February 2022: ISSN 1174-1988). The margin of error for the total sample is + 3.1%.