Risk to small business still significant

Cash flow issues pose a concern despite positive signs of recovery, says economist

Risk to small business still significant

Despite showing some positive signs of recovery, the ABS Business Conditions and Sentiments data that was released last Friday reveals Australian small businesses are not out of the woods just yet, said CreditorWatch chief economist Harley Dale.

According to the report, which was based on a survey of small, medium and large businesses from February 10-17, 2021, 30% of businesses rate cash flow as an inhibiting factor to their operations – a number that has more than halved since April 2020, but remains high nonetheless, said Dale.

“Thirty per cent (30%) is quite a significant number,” he said. “It’s a sign that 2021 is a year where we slowly recover but it’s not all gold and it’s not all roses. There are a lot of small and medium sized businesses in particular that are really going to have to work hard in 2021 to keep themselves alive.”

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The report also revealed that 41% of businesses could cover less than three months of business operations using cash on hand, a figure that would be much lower under “normal” conditions, said Dale.

“The key uncertainty is that we don’t know how many of those businesses are going to be OK when the JobKeeper and the bank mortgage holiday policies end at the conclusion of March,” he said. “We need to recognise that maybe that figure is masking the fact there are some businesses there that are only surviving because of government support. That’s a terrible thing to say, but it may well be the reality, so we do need to look at the April, May, June outcomes very closely.

“That kind of figure may well be representative of the fact that there are businesses that simply won’t be able to survive without government support.”

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While he takes a largely optimistic view regarding Australia’s recovery out of COVID, he said based on statistics such as these, it is important to be realistic about the impact that further lockdowns could have.

“Recognising the positives rather than the negatives is the best thing that everybody can do for people and businesses and the economy in Australia, but realistically if you’re looking at those kinds of statistics, there’s only so many waves of lockdown people can resist and survive,” he said. “That’s why we really need to have hope and faith in the fact that maybe those isolated lockdowns have come to an end.”

On the other side of the coin, there are also businesses ready to thrive in a post-COVID environment after becoming leaner and adapting their business models, he said. Brokers could help to back these businesses by assisting them with finance as they grow while taking advantage of record low interest rates.