The Westpac-Melbourne Institute SME Index (SME Index), which examines the economic health of Australian small and medium sized enterprises, has revealed a significant improvement in business confidence.
The Index, which is based on a representative survey of 400 businesses from all over the country, noted a rise in confidence from 95.6 in Q3 2016 to 100.7 in Q4 2016.
Westpac’s general manager of SME Business Bank, Julie Rynski said, “The strong increase in business sentiment is a burst of good news as 2016 draws to a close and we move into a new year.
“The holiday season can be a particularly challenging time for businesses. Our customers are telling us the top challenges they face over the holiday period are business activity slowing down, cash flow and the closure of suppliers.
“Interestingly, our SME Index found one in three SMEs with an end-of-year strategy are feeling more optimistic than those without. From those surveyed this quarter, more than half have no strategy in place for the holiday season, so now is a critical time for businesses to plan ahead and remain in control, to continue the upward trend in 2017,” said Rynski.
This quarter saw reasonable increases in the SME Index across most states, with a rise of 11.2 percent in NSW (110.4), 14.4 percent in Queensland (100.2) and 37.1 percent in South Australia (87.6).
The Index saw a dip in confidence in Victoria (83.7) which the survey found was partly due changes in overheads and perceptions of changes in government regulation.
Across industries, the SME Index was strongest for the construction, and financial and real estate services sectors, 116.0 and 113.2 respectively, with each sector showing improvements in business conditions in the last three months.
Westpac senior Economist, Matthew Hassan said the positive shift in sentiment was attributed to improvements in business activity.
“The overall lift in confidence over the last quarter is mostly coming from an improvement in current conditions – activity and sales are both up on a year ago. However, most SMEs are still reporting lower profitability, even those with an active business strategy for the period ahead. This suggests the main problem now is how to generate more profit from the pick-up. Retailers relying on aggressive discounting for example may be no better off if the cost of the discounts is bigger than the revenue gain from boost to sales,” said Hassan.
“The SME Index survey found the top three business goals for SMEs in 2017 are enhancing products and services, hiring new staff and improving accounting systems. It’s clear that businesses are reviewing the past 12 months and making meaningful changes for the year ahead,” Rynski said.