Patchy business conditions hit SMEs harder than large rivals

Australia’s patchy economic conditions appear to be hitting SMEs harder than their larger rivals, with a new survey showing companies in the retail and property services sector are hurting the most.

NAB’s survey of SME business conditions for the September quarter showed the index of business conditions for SMEs fell to -1 points, compared with a rating of 8 points for all companies.

Conditions were toughest in the middle range of the SME sector (defined as companies with between $3-5 million in turnover), where the measure of business conditions slumped to -7 points.

Business services (19 index points for business conditions), finance (12 points) and health (10 points) were the best performing sectors during the September quarter, while conditions deteriorated sharply in the property services sector (down from 5 index points to -13) and construction (down from 14 points to -4).

Retail (-14 index points for business conditions) and property services (-13) are the sectors struggling the most heading into the end-of-year period.

What’s driving the poor readings on business conditions is clear – 28% of SMEs reported poor or very poor profitability in the September quarter.

Geoff Greer, the executive general manager of NAB’s Australia business banking division, says discounting appears to be hurting many SMEs.

“We are seeing retailers offer more favourable sale prices and terms which helps sustain turnover and competitiveness, but will no doubt impact on margins and cashflow. Businesses are also telling us that they are experiencing slower payments from their debtors and this may cause cashflow issues.”

Despite concerns about cashflow, consumer confidence and interest rates, SMEs continue to remain upbeat about their prospects for 2011, with business confidence amongst SMEs climbing 7 points to 25 index points.

However, this confidence reading is substantially lower than that for large companies at 31 index points.

Business services was the most optimistic sector, followed by the wholesale, transport and construction industries.