How will the economy impact SMEs in 2018

Economists believe Australia can look forward to continued modestly favorable economic conditions, with the Reserve Bank of Australia recently forecasting 2.5% GDP growth by the end of 2017, affirming the strength and durability of Australia’s economic model.

Australia continues to recover from falling mining investment and is enjoying an increase in resource exports, which is good news for SMEs in the export market who had been cautioned over potential falling commodity prices and margin squeezes. Fears regarding China’s economic woes and our over-reliance on trade with China have meant SMEs were also warned to diversify to take advantage of trade liberalisation with the world’s biggest economy, and SMEs in many sectors continue to benefit from tariff slashing under the Chinese-Australia Free Trade Agreement.

Unemployment remains steady at 5.6%, and analysts believe that lower unemployment may gradually translate to eventual higher wages. Labour market conditions continue to improve, according to the RBA, but wage growth is still described as slow in real terms. The RBA suggests this may have an effect on consumption, with households having elevated debt and therefore possibly constraining spending. This is reflected in the fact that business lending generally remains flat as business owners cautiously limit extending their facilities in the face of uncertain demand. SMEs also report that access to capital can be difficult and costly, limiting spending on equipment, structures and other investment needs.

Inflation is expected to remain steady and interest rates are on hold for now. Steady interest rates are typically beneficial for SMEs. While lowered interest rates can be good for the cost of doing business, buying goods and accessing finance, they can also unrealistically raise expectations about expenditure, leading to stagnation when customers then don’t spend as expected. On the other hand, raised interest rates mean SMEs need to adjust pricing to stay competitive, with an effect on margins.

While some commentators believe that many of Australia’s two million small businesses are essentially hibernating until they are convinced that economic sunshine is here to stay, others are finding SMEs are feeling optimistic despite somewhat weak current conditions. For example, September’s Westpac-Melbourne Institute SME Index, which examines the economic health of SMEs, revealed that SME business confidence rose by 3.2 percent in the third quarter of this year, reflecting a positive outlook for future conditions despite continued rising costs.

Increases in costs and overheads place continued pressure on profitability but its thought that most sectors are expecting conditions to improve, with consumer-facing industries the most confident.

Small businesses remain vulnerable to financial pressures and cash constraints, often caused by payment delays by customers. No matter how positive the outlook or how strong business and consumer confidence may be, small businesses simply cannot thrive if they are crippled by unpaid bills and bad debt. With unpaid bills estimated to cost the economy and small businesses around $76 billion a year, and small businesses owed an average of $38,000 each, business debt seriously hampers a small business’s ability to operate.

Cash flow problems caused by unpaid bills typically create major challenges in paying staff, overheads and creditors, while putting the brakes on a business’s ability to invest and grow. In fact, ASIC estimates cash flow as being a factor in 40% of business failures. As such, it’s critical your small business manages its unpaid invoices and collects on debt owed. With small businesses on average needing to approach their customers five times to collect on unpaid invoices, taking up valuable time and energy, it makes sense to outsource your debt collection to the experts. Engaging a debt collection agency is affordable and a reputable agency will have a good track record of successfully reducing or eliminating bad debt, enabling you to make the most of the currently positive outlook for economic conditions.