Business confidence among SMEs on the rise, despite hard slog expected

Concerns about consumer confidence or spending were widespread among small and medium-sized businesses, but overall confidence among MYOB survey respondents was up. Photo / Lewis Gardner

People running small and medium-sized businesses are more confident about the economy, according to new research from accounting firm MYOB.

But the pessimists still outnumber the optimists.

MYOB said out of 1041 business owners, directors and managers surveyed, 37 per cent of owners and operators believed the local economy would improve this year.

However, 40 per cent were gloomy, expecting economic decline.

A year ago, the Business Monitor survey of small and medium-sized enterprises (SMEs) found 69 per cent of respondents expected a decline and just 16 per cent expected an improvement in the economy.

Emma Fawcett of MYOB said although confidence was up, several pressures were still worrying local business owners.

Those concerns related to the cost of living, inflation and interest rates.

The next biggest concerns were around consumer confidence or spending, and fuel and transport costs.

“Unfortunately, these concerns aren’t likely to fade in the short term as more mortgages are set to roll on to higher interest rates and inflation continues to take its time to drop,” Fawcett said.

“Some SMEs are also coming off the back of a particularly tough couple of quarters, and many would have recognised a recession was under way long before the official figures were out.”

According to Stats NZ, the economy shrank by 0.1 per cent in the December quarter and 0.3 per cent in the September quarter.

Meanwhile, the new MYOB survey found compliance and overhead costs were causing trouble for many small and medium-sized businesses.

New Zealand's small and medium-sized enterprises were more confident than their Australian counterparts in the MYOB surveys. Photo / The New York Times

Overall, 82 per cent of SMEs said overhead costs increased in the past year, up $1490 per month on average.

For SMEs with one to five employees, compliance costs increased an average of $1067 per year, according to respondents.

“This increases to an average of $2187 for businesses with 6-19 employees,” the 2024 Business Monitor added.

Unfortunately for consumers, 54 per cent of SMEs surveyed planned to increase their prices in the next 12 months.

Construction’s tough times

Most SMEs surveyed in the construction and trades, manufacturing and wholesale, and retail and hospitality sectors expected to raise their prices in the next year.

The 2024 Business Monitor found one-quarter of SMEs had revenue increase on the previous year, 41 per cent said it was flat, and a third reported revenue declines.

The construction sector and related trades had an especially tough year, Fawcett said.

Several house builders have failed lately, and Stats NZ said in the year to January residential dwelling consents were down 26 per cent on the previous year.

“Unfortunately, given the drop in building consents, record-high construction costs and projects on hold across the sector, a drop in performance was, sadly, not unexpected,” Fawcett said.

Of the Business Monitor respondents in construction, 39 per cent reported a revenue decline over the past year.

But despite lower levels of discretionary spending, 35 per cent of retail and hospitality respondents reported increased annual revenue compared to a year ago.

Profitability

Just 22 per cent of SMEs in the survey reported an increase in profitability over the past three months. But that was still up nine percentage points on the same time a year earlier.

Just over a third (37 per cent) said profitability was flat and 41 per cent reported a decrease in profits.

More promisingly, MYOB said the overall financial health of local SMEs seemed to be improving.

More SMEs, 43 per cent compared to 35 per cent last year, described current cash flow levels as “good” to “very good”.

About two-thirds of those surveyed rated their overall financial position from “good” to “excellent”.

Employment

The majority of SMEs said staffing levels were about right and just 20 per cent said levels were too low.

Only 9 per cent said employment levels were to high.

The vast majority (84 per cent) of SME operators surveyed planned to maintain current employee levels for the next 12 months.

Just 5 per cent intended to make cutbacks and 9 per cent planned to increase the number of fulltime employees.

As for pay, 21 per cent of SMEs expected pay to go up, and about two-thirds of SME owners said wages and salaries in their business would probably stay the same.

This year, Kiwis were more optimistic than SME counterparts in Australia, where 52 per cent of respondents expected economic conditions to weaken.

Fawcett said another year of hard slog for local business owners had tempered expectations for the year ahead, but positive signs were emerging.

“Overall, businesses are keen to keep momentum going as confidence rounds a corner.”