Cashflow concerns top of mind as SMEs look to invest in growth

Australian businesses are keen to take on growth projects, particularly when it comes to integrating new technology, but concerns around cashflow and late payments continue to dominate.

This month preliminary findings from the Australian Small Business and Family Ombudsman’s (ASBFEO) inquiry into payment times found big business and some government sectors continue to drag their feet on payments owed to SMEs, and more small operators are feeling the pressure.

Around 60% of businesses surveyed by the Ombudsman reported an increase in late payments over the past 12 months, which has had the effect of reducing overall profitability.

Meanwhile, recent data from Xero gives weight to the suggestion that the big end of town is contributing to the payment gap. Xero reviewed SME accounts on its platform and found one in five invoices that were overdue by more than 30 days were payable by ASX200 companies.

More than half the small businesses Xero surveyed had at least one invoice that was more than 30 days overdue.

Small Business Ombudsman Kate Carnell has been focused on measures that will support SMEs in situations where there is a power imbalance, as she highlighted in the recent inquiry into SME lending practices at the big banks.

“Small businesses are critical drivers of competition and diversity so it’s vital Australia has a strong legal framework that allows smaller operators to compete on their merits,” Carnell said yesterday, speaking on the importance of governments to support smaller operators.

Read more: Kellogg’s and Fonterra stretch payments to 120 days

SMEs want to invest in growth despite business cost worries 

The ASBFEO payment times inquiry, which is currently underway, comes at a time when Australian businesses are reporting strong interest in growth plans, while also attempting to keep business costs in check.

SmartCompany’s 2016 Technology Survey reveals a large group of SMEs want to overhaul their systems this year and invest in new technology, but a key concern is finding cost-effective solutions.

Only 12% of respondents to the survey said they have no plans to invest in any form of technology over the next 12 months. Fifty-four percent of businesses are looking at investing in new software-as-a-service solutions in 2017, while 38% will be looking at new collaboration tools.

But while there’s strong interest in finding new ways to work with technology in their businesses, many of the more than 500 survey respondents are concerned about managing their business costs.

Forty-six percent of businesses surveyed mark managing costs as a top priority for the year ahead, while 26% want to reduce business costs. Budget constraints are among the top concerns for 40% of business in terms of technology-related challenges for the next 12 months.

However, it’s also possible that some smaller operators don’t have a solid handle on how their costs match up to long-term cash in the bank.

Financial advisory firm MGI recently collated responses from 200 businesses using its My Catalyst benchmarking tool and found that while 65% of companies cited cashflow as a concern, one third did not know how much capital they had employed in their business.

Despite the challenges, however, more and more Australians report wanting to jump into a new venture. NAB’s recent “Rethinking Success” white paper showed one in six Australians surveyed were thinking about starting a business in the near future.

And analysts believe there’s some good news for small businesses at this stage in 2017. The most recent NAB quarterly small business survey found profitability, trading and employment conditions for SMEs across the country had improved in the three months to December.

“It is encouraging to see that low-tier SMEs’ business conditions have finally caught up to that of the mid-tier and high-tier ones, after a long period of lagging notably behind,” NAB Group chief economist Alan Oster said.

On Thursday Kate Carnell said it is important that Parliament commits to policies that will protect SMEs from structural challenges so that they could continue to grow.

“It’s certainly pleasing to see all sides of politics are hearing our message on the need for low-cost and timely access to justice for small business owners,” Carnell said.

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