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Our Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia's small to medium sized business sectors showing cashflow issues that many businesses face today, below is one of six key insights found in our September 2019 report:

SPC11500 SME Growth Index Social Visuals AW2 Copy

SMEs – whether they are growing, stable or declining – have flagged that their cash flow woes are increasing. The cash flow situation has deteriorated for one in five SMEs, with 7.3% saying it is significantly worse and 12.3% saying it is worse than the previous year.

The percentage of SMEs reporting significantly worse cash flow has doubled since H1 2018. In addition, fewer SMEs are reporting significantly better cash flow – falling from 26.8% in March 2018 to 22.3% now. This cash flow squeeze is taking its toll.

More than one in five business owners cite being rejected from a lending product as the main reason for their cash flow issues.

That is a significant number of Australian small businesses feeling the pinch in their day-to-day operations due to having a loan application rejected.

This is a troubling statistic according to East & Partners Head of Markets Analysis, Martin Smith. He says SMEs’ historical loyalty to banks is not converting into the banks providing appropriate business funding solutions for the many SMEs experiencing cash flow issues as a result of slow credit approval times or outright credit rejections.

SMEs are facing a business environment in which the cash flow squeeze sees them increasingly unable to take on new work (an issue for 22% of respondents).

They are feeling the pinch from suppliers reducing payment terms (39.4%) and customers paying late (40.1%). Increasingly, their cash flow is being impacted by having to write off bad debts (an issue for 5.2%, up from 4.7% in H1 2018).

Once again, business owners see government red tape and compliance as the biggest thorn in their side, with almost three-quarters naming this as their greatest cash flow issue.

More than a quarter of SMEs (27.8%) say their cash flow causes them difficulty meeting their tax payments on time. This has crept up from March 2018, when 24.8% reported this difficulty.

Given the high proportion of SMEs carrying an outstanding tax bill, the ATO continues to be viewed by many SMEs as a sort of “lender of last resort”. Small businesses are almost twice as likely to have a debt with the ATO compared to other taxpayers. Australian National Audit Office statistics indicate SME tax debt accounts for 63% of overall tax debt, totalling $15 billion as of June 2018.


Overall cash flow sentiment

For the total SME market, there has been a 10-percentage point fall in SMEs who report their cash flow is better or significantly better (falling from 68.9% a year ago to 59.4% this round).

At the other end of the spectrum, a year ago one in 10 SMEs said cash flow was worse or significantly worse – now almost one in five are saying so. Another one in five SMEs report their cash flow is holding steady. Just under one in 10 SMEs had no cash flow issues whatsoever in the past year.


How growth businesses are faring

For growth SMEs, almost twice as many as in H1 2018 say their cash flow is worse or significantly worse (21.2%, up from 12.3%). At the same time, non-growth SMEs reporting worsening cash flow has increased to 17.6%, up from 10% in H1 2018.

According to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) 90% of small business failures are due to poor cash flow. Yet SME Growth Index statistics show that almost nine in every 10 growth SMEs plan to fund their growth in the next six months using their own funds – not always an ideal way to foster sustainable growth or to allow for sufficient cash flow within a business.

The whole economy is impacted by Australia’s SME cash flow problem. As part of SME Growth Index research in 2018, East & Partners have extrapolated that this issue costs the SME sector more than $235 billion annually in lost revenue. Business owners need to find new ways to deal with old and ongoing cash flow issues, to put themselves in a better cash flow position. If they don’t, Australia’s growth potential will be constrained.

Like to know more? To download the latest copy of our SME Growth Index, click here.

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