Small businesses warn trading conditions are getting worse and worse: ACCI survey

Small business general trading conditions continued to deteriorate across the board in the September quarter, according to the Australian Chamber of Commerce and Industry’s small business survey released this morning.

The survey of 1,643 small businesses found SMEs expect trading conditions to worsen further over the coming months amid rising input costs, subdued consumer demand and looming global economic uncertainties.

The survey also found the small business sector has become increasingly pessimistic about the strength of the Australian economy over the coming year, with the index of Expected Economic Performance edging lower from 40.6 to 38.8 during the September quarter, to be 2.3 points lower throughout the year.

Of the businesses surveyed, profit growth slid deeper into contractionary territory, while selling prices declined to a new historical low of 44.7, 1.3 points below the low reading of 46.0 previously recorded in June 2009.

Small businesses expect profits and selling prices to continue to fall in the December quarter, while in September wage growth and non-wage labour costs rose further.

The survey found business taxes and government charges continued to constitute the top barrier to investment for small businesses for the seventh successive quarter in the quarter.

Greg Evans, chief economist at ACCI, told SmartCompany the survey clearly showed trading conditions remain challenging for most Australian businesses, with small business reporting conditions as most difficult.

“There is no doubt the adjustment in the economy is hitting smaller companies harder than larger [businesses]. One of the indicators is selling prices are at a level lower than the global financial crisis, so clearly business margins are being squeezed and the profitability of small business is under severe pressure,” Evans says.

He says it is “alarming” that small business growth indicators, such as sales revenue, profit growth and business investments, are approaching historically low levels previously recorded during the height of the global financial crisis.

A lack of pricing power has dented small business profits and its ability to employ and invest, according to Evans.

“Clearly, continuing international uncertainty and the high Australian dollar are all playing to negative sentiment of the domestic economy,” he says.

“We are still waiting to see the impact of lower interest rates and the extent to which they will feed through to improve confidence in the economy.”

Evans says the Reserve Bank needs to cut rates in December in order to help small businesses survive.

“We still maintain we need to have a rate cut in December, the Reserve Bank paused last month on the basis of better international news. However, we believe they are taking a more positive view of the economy than is the case, as evidenced by a round of business surveys,” he says.