Hiring struggles and inflation squeeze SMEs

Despite most businesses increasing wages over the past 12 months, new research reveals that around a third (32%) of SMEs are struggling to fill vacancies as the impacts of a tight labour market and high inflation send business confidence to near-record lows.

The latest MYOB SME Snapshot – a survey of more than 500 local SMEs – has revealed that more than half (59%) of SMEs have increased wages but finding talent to fill job roles remains an ongoing struggle.

Insights from the survey also showed that SME confidence in the economy has fallen to a level close to that recorded at the beginning of the first national lockdown in March 2022 (79%). Nearly three-quarters (72%) of SME owners and operators expect the economy to decline over the next 12 months, while just 17% believe an improvement is likely.

MYOB Head of Go-to-Market, Jo Tozer (pictured), says the latest SME Snapshot insights paint a troubling picture for local SMEs who are facing a perfect storm of pressures.

“Between the impacts of inflation, ongoing supply disruptions, employee sickness and the very real challenge of finding staff, it’s little wonder that SME confidence has now dipped close to what we saw as New Zealand entered its first lockdown,” explains Jo.

“While we saw a reasonable bounce back in sentiment in the first half of 2021, since the lockdown last year in August, we have seen a consistent decline in both SME confidence and revenue, and now these businesses are coming to terms with a whole different environment.

“Given the current local and global situation, it is difficult to predict how long this will continue, and we know that uncertainty is a major challenge for local businesses – but hopefully, with borders to New Zealand now open, some will get a bit of respite soon.”

Inflation, international instability weighing on confidence

With inflation at 7.3% – the highest level since June 1990 – inflationary pressures are now outstripping the ongoing impacts of the pandemic as the key concerns of local businesses.

In terms of local factors having the biggest impact on their level of confidence in the economy over the next 12 months, SME operators cited the cost of living (66%), COVID-19 pandemic repercussions (48%) and rising interest rates (33%). Adding to this, the top international factors shaping confidence levels included: the threat of global recession (69%), Russia’s invasion of Ukraine (51%) and illnesses and epidemics (42%).

Managing staffing levels

While close to a third (32%) of businesses are currently finding it difficult to fill job vacancies and a quarter (24%) have roles vacant at the moment, the majority of businesses describe their current staffing levels as satisfactory (51%) or good (39%) based on what they need to operate their business now.

However, looking across the sectors, some are finding it particularly difficult to find new staff – including SMEs operating in the manufacturing sector (57%) and construction and trades (37%). Almost half (47%) of the manufacturing sector businesses surveyed currently have roles vacant, pointing to a real strain on the industry.

The skills shortage doesn’t appear to be relieved by pay increases either, with 59% of SMEs saying they have increased some (33%) or all (26%) wages within their business over the last 12 months. Just 8% of businesses have decreased wages with the majority saying this is because of the impacts of COVID-19, while 32% of SMEs say their wages have remained the same.

Falling revenue and constrained pipeline work

Year-on-year revenue is down for 44% of SMEs, with just 17% reporting a revenue increase in the last 12 months. Looking ahead, more than a third (38%) of businesses polled say they expect their revenue to fall over the next 12 months, while 24% expect to see an improvement.

The fall in revenue is particularly marked in Auckland, where 52% of SMEs reported a decline over the past 12 months, compared to 39% in Christchurch and 34% in Wellington. However, more Canterbury-based businesses (46%) expect their revenue to decline in the coming 12 months, than SMEs in Auckland (40%) and Wellington (32%).

SMEs’ pipeline of work or sales also continues to be impacted, with MYOB’s Snapshot showing 39% of SMEs reporting less work or sales in the pipeline than they would usually expect for the next three months, while 22% anticipate they’ll have more.

With revenue taking a hit for many SMEs, particularly in the larger local centres, Jo Tozer says local business are really being tested by not only the range, but also the duration, of the pressures they are facing having a clear impact on business performance.

“Having spent the last two years weathering COVID-19 and all the challenges it created, local business owners will have been hoping for some reprieve by now and to be seeing that manifesting in their financials,” says Jo.

“But if the last few years has proven anything, it is that local businesses are incredibly resourceful and resilient, in the face of some extraordinary challenges.

“For those business owners struggling now, it’s worth focusing on the elements of the business within their control, like service and quality, and of course asking for guidance from their accountant or financial advisor. This cycle will be temporary and getting the business in good shape now will help them flourish on the other side of it,” she adds.