Capital spending and employment up, confidence still in the dumps: SME survey

More Australian small and medium businesses increased their employment and capital expenditure in the June quarter than in the previous quarter despite falling confidence, sales and profitability, the latest Sensis Business Index has found.

The quarterly survey found 12% of small to medium businesses increased employment in the June quarter, up from 10% in the previous quarter. However, 14% of businesses reported decreasing employment, bringing an overall increase in in the trend.

There was also a five percentage point increase in capital expenditure, taking it to a net -9%, up from -14%.

Report author Christena Singh told StartupSmart while the results for both employment and investment were net negatives, the most recent findings could indicate a small increase in business owner confidence.

“When you look at it overall, we’re seeing challenging time for businesses, but it’s good to see increase in employment and it’s also good to see the capital expenditure trend increase,” she says.

“That’s been a fairly difficult indicator for some time, but business owners need the confidence to invest in their business.

“It’s still net negative overall for employment, so the improvement is in the trend. More businesses overall are decreasing rather than increase, but we’re getting close to balance,” Singh says.

“It’s good to see the trend but we have some way to go, it’ll be good to see that in net positive again.”

The quarterly survey of 1800 businesses across Australia revealed confidence was highest in metropolitan areas, and the health and community services industries, and also the cultural, recreational and personal sectors. Manufacturing had the lowest confidence due to decreasing business activity.

It also found a lack of work or sales was the most pressing concern for businesses, with sales performance at its weakest level since August 2011.

Small businesses are still struggling with productivity, returning a net negative result for the fifth year in a row.

“We haven’t seen a net positive increase for some time, and if you look back at those years, that indicator has been negative since 2008 with the onset of GFC,” Singh says.

“It’s part of the reason to do with lower demand, and negative sales results and cash flow. And if you’re facing a difficult cashflow and declining sales issues, you’re going to be facing quite considerable productivity challenges for some time.”

While the good news was limited, Singh says businesses which are strategic can have confidence looking forward to when consumer confidence and buying increases.

“Almost a quarter of small businesses saw their profits increase, and almost three in 10 saw an increase their sales, so it’s about being strategic and targeting growth,” Singh says.

“Even in struggling sectors, there are still strong success stories and you need to be strategically planning for growth,” Singh says.

“You need to position your business to take advantage of when the economy starts to improve as the demand situation improves and consumers having the confidence to buy again.”

This article first appeared on StartupSmart.