SME owners still optimistic but not retiring any time soon

Perth, July 6, 2010 – Accounting firm RSM Bird Cameron’s fourth thinkBIG benchmark study into Australia’s small-to-medium enterprises (SMEs) found that, for the second year in a row, one in five SME owners have delayed their exit date from their business because of economic uncertainty.

Business owners reported little change in their plans to exit the business from 2009, with more owners expecting to continue working after they dispose of their business compared with three years ago.

According to the study, SME owners are quite optimistic about their business’s medium-term prospects but remain concerned about cashflow management and continue to be more aware of the stress associated with managing their business.

More than half of business owners in the thinkBIG study do not expect to see any improvement in the availability of finance in the short term, underlining continuing uncertainty in the sector.

“thinkBIG found that business owners faced tougher trading conditions over the last two years, with nearly a third recording no revenue growth or a decline in revenues, up from the 2009 result,” said Terry Rodoni, director, Business Solutions, RSM Bird Cameron
“On a brighter note, business owners in regional centres experienced the strongest revenue growth.

“SME owners have told us they will increasingly improve efficiency through technology over the next 12 months, although many will continue to rely on price increases or overhead reduction to protect their margins,” Terry said.

Business owners more optimistic about next 12 months
The thinkBIG survey revealed there are some modest signs of a more optimistic outlook over the next 12 months, with fewer SME owners expecting to reduce personal drawings and fewer expecting to reduce staff. However, nearly a third of owners are not sure whether their business will grow over the next two years or do not believe it will grow.

The study shows that SME owners tend to be high on enthusiasm but many find it difficult to set aside time for planning. In spite of the difficult trading conditions over the last two years, SME owners remain satisfied with their decision to run their own business.

Planning still not high on the agenda for SMEs
Consistent with thinkBIG 2009 study, more than half of SME owners do not plan their business on a formal basis and the majority has no plans to invest a proportion of their retirement funds into superannuation after leaving the business.

“Business owners that make the commitment to undertake formal business planning are more likely to grow their business,” Terry said.
“thinkBIG found that significantly more businesses that plan their business recorded revenue growth compared with businesses that do not plan, in spite of the difficult trading conditions over the last two years.”

Superannuation unsatisfactory
Business owners’ satisfaction level with their retirement provisions has remained low over the last three years, with only one in 14 owners completely satisfied.

“SME owners continue to be highly dissatisfied with their superannuation provisions for retirement, which is not surprising given thinkBIG found that only a third of owners expect to invest some proportion of their retirement funds into superannuation after leaving the business.”

thinkBIG found that one in seven SME owners was impacted by government fiscal packages over the last 12 months, with nine percent reporting they brought forward an investment decision and six percent making a new investment.

About RSM Bird Cameron
RSM Bird Cameron is the largest mid-tier accounting firm in Australia serving business with technical and commercial expertise in agribusiness and SME’s and a full range of specialist corporate and business advisory services including succession planning, superannuation, assurance and advisory, corporate finance, taxation consulting and turnaround and insolvency.

RSM Bird Cameron is a core member firm of RSM International, the sixth largest accounting and consulting organisation in the world.

thinkBIG 2010 fast facts

Impact of the global financial crisis one year on
– Around one in nine SME owners faced extra scrutiny from external financiers in the last six months (12%), compared with one in seven owners in 2009
– This year SME owners reported facing tougher trading conditions over the last two years, with 32% experiencing no revenue growth or a decline in revenues, up from 26% in 2009
– SME owners in regional centres reported stronger revenue growth over the past two years compared with businesses in capital cities and rural areas, with 76% in regional centres reporting growth versus 66% and 61% respectively in capital cities and rural areas
– One in seven SME owners said their business was impacted by government fiscal packages over the last 12 months, with 9% reporting they brought forward an investment decision and 6% making a new investment
– Around a third of SME owners said they would increase investment in plant and equipment if the investment allowance were re-introduced (32%), although 34% said they would not increase investment and 34% are unsure

Business outlook
– A majority of SME owners expect their business to grow in the next two years (69%), although nearly a third are not sure or do not believe it will grow
– A majority of SME owners do not expect to see any improvement in the availability of finance in the short term, with 56% responding negatively when asked whether financing the business will be easier in the next 12 months
– There are some modest signs of a more optimistic outlook over the next 12 months, with fewer SME owners expecting to reduce personal drawings (37% in 2009 versus 27% in 2010) and fewer expecting to reduce staff (18% in 2009 versus 8% in 2010)

Business planning
Starting the business
– The desire for independence and work/life balance continues to be more important to SME owners than creating wealth. A majority of owners started their business because they wanted to be their own boss and 47% said it was because they wanted a better work/life balance, compared with around a third who said it was to create wealth

Planning the business
– Although significantly more businesses undertake formal business planning than three years ago, more than half of SME owners in this year’s study said they do not plan their business on a formal basis (61%)
– There is still a considerable gap between the planning practices of micro-SMEs and larger SMEs. Significantly fewer owners of SMEs with one to two employees reported a formal business planning process compared with larger SMEs
– Also, significantly fewer owners of SMEs in rural areas undertake formal business planning
– SME owners who undertake formal business planning are reviewing their plans more frequently than three years ago, which may be in response to the changing economic conditions over the last 18 months. Today, nearly two-thirds of this group completes a business plan every year (66%), although 18% complete a plan less often than every two years
– SME owners who undertake formal business planning continue to focus their attention mainly on business goals and financial planning. Three-quarters (76%) have a marketing plan, but only half have an operating plan or a management plan (54% and 48% respectively)

Growing the business
– More than two-thirds of SME enterprises experienced some form of growth over the last two years, although nearly a third experienced no growth or a decline. The largest group of SME owners reported growth in the range 1%-14%
– Businesses that plan are more likely to grow. Eight out of 10 SMEs that planned their business experienced revenue growth over the last two years compared with six out of 10 that did not plan
– Many SME owners continue to rely on reinvested profits, with over a third of owners nominating this as their main source of funding for growth. However, around a fifth continue to rely on foregone salary and bank debt
– Although SME owners continue to show faith in their businesses, with more than a quarter saying there are no barriers to growth (26%), similar sized groups identified skill shortages, lack of market opportunity and access to capital as key barriers (26%, 23% and 20% respectively)

Exiting the business
– Consistent with 2009, nearly one fifth of SME owners (19%) reported delayeding their exit date from the business because of the impact of economic uncertainty over the last two years
– Similar to their sentiment in 2009, SME owners also expect to work longer. Of the 28% of owners with an exit plan, seven out of ten think they will continue working after they exit the business compared with six out of 10 in 2007
– Around half of SME owners with an exit plan expect to exit their business some time in the next four years
– One in six SME owners with a plan to exit the business is not sure of the proportion of their retirement funds that will go into their superannuation (17%), but this figure rises to 46% for owners without a plan
– In 2010, 34% of SME owners with an exit plan said the proceeds of their business upon exit would be the primary source of their retirement funds, compared with 26% in 2007

Passing the business on
– Of the group of SME owners who expect to exit their business by passing it on to a family member or have another exit strategy, nearly one in two is unsure of the proportion of their retirement funds that will be invested into superannuation, which is consistent with the high level of uncertainty about retirement planning reported in 2009
–  One in seven SME owners who expect to pass on their business has delayed retirement because of the economic downturn (14%)
– Only a quarter of SME owners who expect to pass on their business have a succession plan (24%), although relatively more owners in regional centres have a plan compared with owners in capital cities and rural areas

Superannuation planning
– Only a third of business owners (34%) will invest some proportion of their retirement funds into superannuation after leaving the business
– Three years on from an earlier study in 2007, SME owners continue to be less than satisfied that their total superannuation provisions will be adequate in retirement, recording an overall satisfaction rating of only 4.4 on a scale of 1-10, where 10 represents complete satisfaction
– Owners of larger SMEs with 20 or more employees reported the highest level of satisfaction with the adequacy of their superannuation provisions, recording average scores of 6.0 and 7.9 (20-49 employees and 50+ employees respectively)
– A quarter of SME owners (25%) are not at all satisfied with the adequacy of their superannuation provisions, similar to the result reported in 2009
– Only one in 14 business owners (7%) is completely satisfied with their superannuation provisions

Use of external advisors
– Around half of SME owners sought help from external advisors in the past, with business planning and superannuation advice proving the most popular, followed by retirement planning advice
– The most commonly used external advisors are accountants, with nearly half of SME owners reporting they used an accountant in the past for exit planning and over a third using an accountant for business planning. Business owners also reported seeking advice from financial planners for retirement planning and superannuation planning

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