SMEs finally optimistic as bright spots emerge

The latest research by New Zealand’s largest accounting software provider MYOB indicates that while local business owners see a long road ahead for the economic recovery, positive revenue prospects have boosted their confidence.  

The March 2013 MYOB Business Monitor report found small and medium business operators (SMEs) are optimistic about their prospects in the year ahead. This is despite only a one percentage-point increase in the proportion of SMEs whose revenue rose in the prior year, when comparing the latest study with the June 2012 study.

The Monitor research, a national survey of 1,000+ SMEs commissioned to independent market research firm Colmar Brunton, has run since 2009. It explores business performance, attitudes, plans, and more over time. 

In this study, one quarter of business operators (24%) expected the economy to improve within 12 months – up on 18% in June 2012. Two thirds (66%) expected improvements in more than one year and the remainder were unsure. Revenue expectations had also improved, as had the level of work in their quarterly pipeline.

MYOB NZ General Manager, Business Division, James Scollay says it suggests business owners have welcomed a more positive last quarter of 2012 and are hoping to extend that to performance in 2013. 

“New Zealand businesses have been determinedly resilient throughout the economic recovery and we see them becoming more confident despite the protracted pace of improvement,” he says. 

“32% of SMEs experienced a revenue increase over the last year and 38% experienced stability, which is positive. However, what’s more telling is the 41% expecting an increase in the coming 12 months, in addition to 42% who expect stable revenue. Things appear to be on the up for the engine room of our economy.”

As Christchurch sees increased momentum in its rebuild, it leads the way in the recovery. The city is well ahead of other main cities when it comes to economic positivity, revenue growth and expectations.

34% of Christchurch operators were optimistic the economy will improve within 12 months, compared to a 24% national average. Auckland followed closely, with 30% expecting an improvement within 12 months. Only 15% of Wellington respondents agreed.  

“This indicates the pick-up in Christchurch’s rebuild has given business operators a burst of confidence for their revenue prospects, cementing the region’s status as an economic driver of the recovery,” says Scollay. 

Not only have 45% of Christchurch SMEs seen a revenue rise in the last 12 months, up 17 percentage points since the last study, 57% expect to see a rise over the coming year. They also have a significant work pipeline, with 35% reporting more worked booked than usual for the upcoming quarter, compared to 19% with less work.

 The proportion of businesses struggling with the slow recovery has also declined in Christchurch, with only 23% stating a revenue loss in the latest Business Monitor. This compares to 40% in the prior study.

“Christchurch businesses were 27% more likely to see a revenue rise in the past year than the other main centres. Their financial performance had improved considerably since June 2012 as had their performance expectations for the future,” Mr Scollay says. “This notable change suggests the rebuild, which has had a significant upswing in the last six to eight months, is flowing through to the wider local economy.”

Revenue improvement in Wellington and Auckland has not been as strong as in Christchurch. In fact, these cities experienced slowed growth last year. Despite 33% of businesses in the capital reporting a revenue rise (compared with 23% reporting a fall) and 32% of businesses in Auckland reporting a rise (compared with 23% falling), both cities are off the pace set mid last year. At that time, 40% of Wellington businesses and 35% of Auckland businesses reported revenue rises. This highlights the ongoing challenges of a sluggish recovery.

However, Auckland SMEs are more positive about their performance in 2013 – 45% projected a revenue rise in the next 12 months and 36% projected stable revenue. This compared to 31% and 54% in Wellington.

New work in Wellington is relatively steady in comparative terms for the upcoming quarter, with 18% of businesses reporting more pipeline work than usual and 16% reporting less. 34% of Auckland businesses have more work on for the quarter, compared to 21% with less.

“With the public sector tightening its belt, Wellington businesses are feeling a pinch,” affirms Mr Scollay. “Auckland businesses, however, continue to be buoyed by a strong finance and property sector, and signs of improvements in local retail and manufacturing.”

 

With the consumer dollar top of mind, the most common pressures small and medium business operators say they will experience in the next 12 months have changed since the June 2012 Business Monitor. 

In the latest Monitor, cashflow and price margins and profitability tied for first place after rising from second and third in the previous study. 63% of business owners expected to face some kind of pressure from these in the year ahead. Fuel prices (61%) fell two places to third, tying with attracting new customers (61%), which rose from fourth place. Competitive activity remained in fifth place (58%).