Australia’s small business confidence has reached the lowest level of the year with the latest Westpac-Melbourne Institute Small Business Index falling by 10.1 percent to 111.4 in the August report, from 123.9 in May.
On a state level, small businesses in New South Wales and Queensland reported a significant decline of 14.9 and 14.6 percent respectively, while Western Australia bucked the trend with a 6.2 percent lift.
Despite the falls, overall confidence remains in positive territory with key indicators such as stable low interest rates underpinning hopes that recent declines will start to bottom out, said Julie Rynski, Westpac general manager, small business.
“All States except WA have suffered some loss in small business confidence during August, however, the general outlook still remains optimistic (above 100). WA is the only state to report an increase in their overall performance, which has lifted by 6.2 per cent.”
“Despite a slight decline in most states, it’s encouraging to see that sentiment has remained positive for the third consecutive quarter, which reflects the dedication and hardworking nature of small business.”
WHAT”S AFFECTED BUSINESS PERFORMANCE?
The Index also revealed that the proportion of small businesses nominating ‘economy’ as a positive factor declined sharply over the last three reports, from 35.1 per cent in the February report and 22.5 per cent in the May report to just 12.9 per cent in the latest report.
The following seven factors were quoted by small business as having an impact (either positive or negative) on their business performance.
- Staff: employee performance, hiring and retaining staff
- Costs: including wages and overheads
- Finance: cash flow, access to loans and credit
- Economy: including growth, consumer spending, the Australian dollar
- Customers: including customer relationships and sales
- Regulation: compliance, administration
- Infrastructure: including quality of public sector facilities and utilities, and IT factors
Regulation was nominated by 40.4 percent of small business with turnover between $1m and $2m as a major hindrance to their business.
The wholesale and retail trade highlighted customers as a negative influence (47.5 percent). However customers and staff were nominated as positive factors by 53.7 percent and 21.3 percent of small businesses.
According to the Index, small businesses with turnover between $1m and $2m were “considerably cautious in their forward planning” as a significant majority (more than 95 per cent) are not expecting to either invest or seek credit within the next three months.
IMMEDIATE BUSINESS OUTLOOK
Rynski said there are two factors that will lead to increased confidence: the upcoming Christmas period, and sign-off on the federal budget.
“We have still some uncertainty around the budget because it hasn’t yet been ratified.
“After speaking with many of our small business customers, we expect to see sentiment pick up across the nation over the next quarter in the lead up to the busy pre-Christmas period.”
Looking ahead, the Index revealed that small businesses have more moderate expectations about future business activity than in previous quarters, said Rynski.
“A net balance of 16.2 per cent of small businesses (declining from 26.1 per cent in the previous quarter) expects activity to improve over the next three months, and the majority of small business expect to maintain their current level of employment.”
The hospitality and recreational services have proved the most optimistic about business.
“SMEs are the backbone of our economy and Westpac will continue to support this sector by offering easy access to specialised advice, together with the largest business banking footprint in Australia,” added Rynski.