Sensis Business Index: SME confidence up despite red tape and insolvencies

The December 2013 Sensis Business Index recorded the highest single quarter increase in SME confidence since the comprehensive survey’s beginnings in 1993, a year when the most popular piece of technology we were using was the humble fax machine.

The results are surprising, perhaps, as December also marks the end of a tumultuous year for Australian businesses.

This year saw the highest amount of insolvencies in the six months to June since 1999  – countless players both big and small in the manufacturing industry collapsed (capped off with Holden’s announcement last week that it would stop producing cars in Australia) as did businesses associated with mining, dairy and the fitness equipment industries. Household names in local fashion design, such as Colette Dinnigan, also buckled.

But over the last three months (and in the wake of a federal election that significantly coloured the way businesses behaved), in a record jump, the confidence of SMEs has soared from 17% to 38%. Businesses are looking ahead like never before.

According to the report’s author, Christena Singh, a vast majority of businesses felt the economy would improve in 2014. Positive perception is up 22% since the last quarter’s results, Singh said, overall rising 52% since the same time last year – a “huge difference”, she noted.

Last Thursday at the Melbourne leg of the joint Sensis/SmartCompany Business Directions Breakfast series, on the banks of the Yarra at Crown Towers, Singh delved into some of the most surprising findings gleaned from the survey, joined by small business champion and executive director of the Council of Small Businesses of Australia (COSBOA), Peter Strong.

The event’s host and SmartCompany acting editor Melinda Oliver also discussed some of the highs and lows SMEs faced this year, emphasising what a dramatic effect the federal election really had on business.

“Companies were watching every penny when it came to extra pursuits – staff training, marketing…and we interviewed countless businesses concerned with the overload of government induced red tape, heard worry about interest rates and potential changes to the paid parental leave scheme, the prospect of rising superannuation costs and there was great debate over the carbon tax.”

One of the biggest “stumbling blocks” this year was the federal election, she said, one where the needs of SMEs “really seemed to get a look in”. Yet it was also an election which seemed to freeze decision making for businesses, especially when it came to investment and hiring.

Singh has been working on the Sensis Business Index since 2003 and said it was the rapid changes in technology that had amazed her the most, as had the huge swing in SME confidence this quarter.

“It’s a fantastic time to be running a business right now…and this confidence is backed up by an increase in sales and performance and investment. Businesses are actually seeing more change happening at the shopfront. More money is coming through the door and more customers are coming through the door,” she said.

The Business Index took a more detailed look this quarter at how prepared SMEs were in the case of business discontinuity and the risks they faced from natural disasters. Despite the number of recent high profile natural disasters over the last year, SMEs rated data attack as the highest risk they faced and surprisingly, only 53% of businesses had plans in place to deal with business discontinuity and disruption. While 95% of SMEs backed up their business records and data, only one in five backed up records in the cloud (74% backed up at a single physical location such as an office).

Singh said “the time of the cloud has come” and that it was a very good option for alternative data back up that she expected many SMEs would embrace, particularly as the consumer market was becoming “more adept” at using it.

Meanwhile, Strong’s focus revolved around improving communication channels between government and small businesses and how businesses could move forward, grow their company and continue to be innovative despite being bogged down in paperwork and red tape – be it superannuation, penalty rates, health regulations, competition policy and contract law or parental leave.

But perhaps of most interest was that attendees at the event overwhelmingly echoed the findings of the Business Index and identified with the sentiments of Singh and Strong.

Catherine Gobby set up her children’s birthday party business, PolkaDot Entertainment, seven years ago. Now, along with her “right hand woman” and manager Anthea Taalman, she oversees 15 staff in three locations across Melbourne.

According to the Sensis Business Index, businesses in the health and community services sector and those in the cultural, recreational and personal category were the most positive, with confidence levels of 72% and 71% respectively, and Gobby said she was certainly part of that optimistic percentile.

“There have been challenges but we’ve found, in our industry at least, that people want to spend – we have businesses in Altona Meadows and Ashburton, two very different demographics, but we’re getting sales at both.

“Our new challenges are certainly digital and SEO and devising content marketing strategies, getting educated on social media. It’s daunting but exciting at the same time,” she said.

Some of the primary issues reported by the 1800 metropolitan and regional SMEs polled were the economic climate and competition, but the key reasons SMEs gave this quarter as to why they felt confident included the view that the newly elected federal government “traditionally supported small business and that they were trying to reduce red tape”.

Gobby said while she didn’t yet feel more confident that red tape would become less restrictive under the Coalition government, it was something that weighed her business down most.

She said while she was constantly coming up with new ideas to build the business, she was stifled by administrative requirements, spending two days a week ploughing through red tape.

“I have a business marketing degree but you don’t learn how to operate a small business…your obligations to staff, insurance, Fair Work, permits, awards, super, liability. Nobody tells you about this.

“I’d like to see more awareness – for example superannuation is going digital and I only got a letter about this last week. I want more seminars and education on our obligations.

“I didn’t start my own business to get inundated with bookwork and admin…sometimes innovation and creativity gets flattened so I’d like to see ways the government and the industry can work around this.”

George Kotzageridis runs Aegis, a transportation and security business, and over the next six months he plans to import armored, bullet-proof cars to supply to the government and private sectors.

But he said stringent customs regulations and the mountain of laborious legislative paperwork required for each state and territory he wanted to supply his product in had stalled business plans and “was a constant worry”.

The Holden announcement last week made him feel nervous, he added, and he worried the “struggle with bureaucracy and customs and red tape” would stifle his business plans.

“At the moment I have 14 staff but we can’t ramp up anything until we get through all of this red tape. At the moment we are based in Melbourne, but we want to be Australia-wide. So for me, next year I’d like to see harmonisation between states and territories…it’s key. It’s why I’m here today, I want to find out how I can be helped through this, what can I do.”

Like Gobby, Kotzageridis said he was eager to learn more about what social media and robust digital marketing could mean for his business, particularly the power of a solid search engine optimisation strategy.

“My business is limited in Australia because we’re battling with different legislation in different states, but if we can perform well online it could make a difference. I think many of us here today are in the same boat,” he said

Brand strategist and designer Graham Milkins said despite doom and gloom forecasts, he’d worked with a number of small manufacturing companies who were doing well. “They’ve got the potential to grow quite considerably over the next few years which is interesting,” he said.

Meanwhile corporate communications specialist Christopher Jennings, who works with a number of small businesses across the country, welcomed with relief the boost in SME confidence after a year he saw “businesses become their own worst enemies”.

“At the beginning of this year and late last year there were a few projects I was working on that either went into remission just because of media forecasts of how dark and gloomy the economy was…as soon as you get the big retailers saying ‘our sales are going down’ then the small businesses panic, it’s a cycle.”

Strong picked up on the issue of copyright and the problems that could arise as more and more small and medium businesses curated their own blogs, website content and images and social media accounts.

It was something Milkins said could be an issue, and while digital agencies were racing ahead with social media, he didn’t think SMEs quite had a grasp of how to harness it just yet: “The agencies have the power there and I think social media and digital and data mining and content curation is exciting…and we’re of course seeing the retail sector embrace e-commerce which is fantastic, but I don’t think small business quite understands it all just yet. Social is another vehicle for telling the story but having a strategy is essential,” he said.

These were also Singh’s final words of advice for next year: “Businesses are spending a lot of money – on average $16,000 a year – on digital technology but most are not employing a digital strategy. It’s important to make sure technology is strategically planned.”