ScotPac sees SMB sector ready to grow once lockdown cycle ends

With lockdown rules and border closures regularly changing, small and medium business owners are looking beyond these constraints and focusing on how they can adapt and grow.

National SME Growth Index research by leading non-bank lender ScotPac found just over half (50.1%) SMEs are forecasting business H2 2021 revenue growth.

An average revenue increase of 4.8% represents a healthy uptick from a year ago (4.4%).

ScotPac’s advisory on the SME Growth Index research

ScotPac Chief Executive Officer, Jon Sutton said polling also revealed a promising increase in the proportion of SMEs planning to invest in their business through to the end of 2021.

Out of 1255 businesses, 727 (57.9%) were looking to invest back into the business. This is a significant jump from late 2020 when a four-year low of 51.9% was recorded.

“This brings investment intention almost back to pre-pandemic levels.The research took place over six weeks before and in the early days of the NSW Delta outbreak,” Mr Sutton said.

“Findings indicate that if we can get past lockdowns and border restrictions, a slim majority of the SME sector is backing its ability to achieve revenue growth.”

“At the other end of the spectrum, negative growth SMEs are finding it tougher than ever.”

“The impact of Victoria’s 2020 extended lockdown is still being felt by the small business sector, something NSW should be mindful of as they look towards reopening.”

“Small business winners and losers are increasingly separated by location and industry.”

Impact of Vic lockdown sends a warning for NSW

The SME Growth Index is Australia’s longest-running research on SMB growth prospects.

The research which was conducted by East & Partners in September 2021 polled a representative sample of 1255 small business leaders across the states of Australia.

The research shows the impact of long lockdown in Victoria is still being felt in the SME sector.

Fewer than two in ten Victorian businesses are forecasting positive growth, with six in ten forecasting revenue decline and a quarter of respondents are expecting to remain static.

NSW usually very bullish about growth prospects, was already tentative in the early days of its Delta outbreak. Four in 10 SMEs were forecasting revenue growth, just over a quarter thought revenue would decline and around one third said revenue would hold steady.

Queensland is the state with the fewest SMBs (only 2.2%) forecasting revenue decline. About a quarter are holding steady. A buoyant seven in 10 (73.8%) are forecasting growth.

These results point to just a few industries such as tourism being hardest hit.

According to the research, of the two in a hundred Queensland businesses forecasting revenue decline they are expecting the largest decline of any of the states (-6.1%).

Western Australia, South Australia and the Northern Territory were the most positive about finishing 2021 with strong revenue according to the research findings.

In each of these Australian states and territories, more than eight in ten businesses are forecasting growth and fewer than one in ten are expecting their revenues to decline.

Signs mean restructuring and M&A boom will continue

Mr Sutton said the SME Growth Index recorded the highest ever proportion of SMEs forecasting revenue will decline (26.1%), with the widest revenue range from 9.6% growth to -15% decline.

“We recorded the equal lowest ever proportion of SMEs with no change in revenue (23.7%)”

“This data is therefore suggesting that businesses are being forced off the fence and they are either scaling up for growth or bracing for troubled trading conditions,” he said.

Each round, business respondents are asked to identify their business phase as either start-up, growth, stable, consolidating or contracting (declining).

Almost two-thirds of SMEs identify as being in a positive business phase – they are either in growth phase (35.1%) or stable (29.5%). A further 10.8% identify as start-ups.

An increasing proportion of businesses identify as struggling. A record high (15.7%) are in outright decline – this percentage has almost doubled since research began in 2014.

“Our past three research rounds have seen consecutive results with the highest number of contracting SMEs as at any time since 2014,” Mr Sutton said.

“Given the optimistic growth prospects of half the sector and the warning signs for the troubled end of the SME sector, the next year will see strong restructuring and M&A activity.”

“This is reason for SMBs to ensure they get professional advice to guide their enterprises and the right funding to fuel their business activities and allow them to survive and thrive.”