The latest Fifth Quadrant SME Sentiment Tracker wave report reveals more measured sentiment in March 2024, with revenue declining and expectations regarding lower interest rates being re-evaluated.
It also notes a weakness in employee data.
Despite these challenges, a significant portion of Australian SME remains growth-focused, cautiously balancing investments in capital equipment against economic uncertainty and shifting customer behaviours.
Profit
After a robust start to the year, 30% of SMEs reported weaker revenue in March compared to 12 months earlier. Profitability has also diminished, with 27% of SMEs experiencing a loss, an increase from 22% the previous month.
Concerns
After a period of decline, concerns regarding inflation and interest rates have begun to trend upward, with 74% now being concerned compared to 68% last month. Clearly, businesses are apprehensive that the anticipated rate relief may not materialise as soon as hoped.
Cost recovery
Accordingly, many SMEs continue to adopt efficiency and cost-cutting measures, including discontinuing unprofitable products/services (26%) and streamlining business operations (23%).
People
Employee data is also weakening, with 19% of SMEs reporting fewer employees than 12 months earlier. Consequently, the proportion of SMEs anticipating staff increases over the next three months has also declined, and only 20% of SMEs are currently seeking to fill positions, compared to 27% in January.
Challenges
Despite weakness across most key performance indicators, growth expectations remain robust, with 37% of businesses targeting growth over the next 12 months. However, this marks a decline from the spike to 44% recorded last month. Notably, growth-oriented businesses are acutely aware of the numerous challenges that could temper their growth expectations, with the economic outlook (42%) being the primary concern, followed by changing customer behaviours (34%) and workforce productivity issues (19%).
Investment
Despite ongoing caution, SMEs are maintaining their investment in capital equipment, a trend anticipated to continue as they seek to capitalise on tax concessions available before the financial year ends. 27% of SMEs will increase their capital investment over the next three months, up from 20% last month. This illustrates a careful balance between managing costs and seizing opportunities to grow business.
Finance Requirements
However, the demand for additional finance over the next three months has decreased to 12%, down from 20% in December 2023. This trend suggests that most SMEs intend to rely on cash flow and existing financial facilities for their investment needs, indicating a preference to minimise debt exposure until interest rates decrease.
