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SMEs tightening belts, according to Westpac study

A new survey from Westpac has revealed Kiwi SMBs are tightening their belts as they plan for the future.

The latest Westpac Business Growth Monitor shows small to medium sized business are ‘putting pen to paper’ to plan their way through a tightening a number of challenges facing the economy.

In the quarter to 31 March, the Westpac Business Growth Monitor measured the confidence of more than 500 SMEs (with less than $5 million turnover) on the economy, their plans to grow, intentions to create jobs and need for funding.

According to the survey, the biggest drop in confidence came from medium size businesses with 10+ employees where expectations of growing the business have plummeted nearly 20% from the last quarter (49% vs. 68%).

Steve Atkinson, Westpac’s Head of Specialists Commercial, says businesses are ‘hunkering down and pausing for a breath to an extent, as they plan their future carefully over the next year or so.

“There are a lot of factors now in play that businesses don’t have control over – the Chinese economy, uncertainty in Europe, the US elections and closer to home the dairy downturn,” Atkinson says.

“Businesses are starting to put the dots together and trace these uncertainties back to their own businesses and their own future,” he explains.

While the intention to hire staff has increased (13% vs 8% in Q1), Atkinson says that fewer businesses are looking to commit to large loans and it appears business are looking at ways to self-fund more.

The monitor showed that overall, businesses are increasingly cautious. Of those looking to borrow in the next six months, only 31% are looking for loans of over $50,000, compared to 45% in the previous quarter – a 14% fall in $50k+ loans in just three months.

“This is hardly surprising in an economy linked so heavily to the primary sector, but overall we’re being kept on a relatively even keel by buoyed confidence in Construction, Trade, Transport and Tourism, where businesses are hiring more,” Atkinson explains.

“While only 35% of primary sector businesses expected to grow in the next six months, trade, transport and tourism businesses were showing more optimism, with 17% reporting increased employment over the last three months,” he says.

“In the last quarter we’ve seen a 6% increase in the number of businesses who have a business plan in place to achieve their growth goal (67% vs 61%).”

Atkinson says that SME businesses owners have not traditionally been great succession planners, but we’re seeing stronger considerations around retirement.

“The latest survey shows there are even more owners looking to exit their business over the next two years (up from 10% to 12%),” he says.

“This all comes back to the importance of planning. SMEs can be extremely vulnerable to wider economic factors, so business should always plan to prosper throughout the economic cycles and be thinking about their retirement from the get-go,” says Atkinson.

“It’s about being prepared for all economic conditions and all stages in life.”