Why Australia’s SMEs are 20% more optimistic than a year ago

In the past 12 months, small business confidence in the economy has surged 20% thanks to a change in government and greater optimism in growing sales.

The latest annual Asia Pacific Small Business Survey by CPA Australia found for the first time in three years the majority of small businesses in Australia think the economy will grow in 2014.

In the next year 58% of Australian respondents thought the economy would grow, up significantly from 38% in 2013 and 35% in 2012.

However, CPA Australia chief economist Bryce Prosser told SmartCompany a stronger economy doesn’t necessarily translate into more profitable small businesses.

“It will take time. We know there is general feeling of confidence in the economy, but the tricky part is translating that into business. This confidence in the economy needs to somehow be translated into sales and profits,” he says.

“The government needs to support small business and have clear and consistent policies, responsible economic management and they need to make it as easy as possible to set up and run a small business. While businesses need to look at the business underneath, examine their cash flow management and look at ways to boost customer retention – the fundamentals.”

The survey found the main drivers of the increase in confidence of economic growth were expected sales increases, improved business models and a more positive economic environment.

The positive sentiment around the economy was flowing through to employment expectations, with one in five expecting to up their numbers in 2014.

But despite this, it didn’t translate into increased confidence about their own businesses, with this measure slipping 4% in the past 12 months to 56%.

The main barriers to business growth in 2014 in Australia were increasing costs, a poor overall economic environment and increasing competition.

Despite the rhetoric around the impact of red tape on small business, only 15% of respondents believed over regulation would hamper their business in 2014.

In the past year, 56% of Australian small businesses had said rising utility costs had impacted their business, while 46% were also impacted by fuel prices and 39% by taxes.

In response to the economic environment in the past 12 months, the survey found 37% of Australian small businesses had reviewed their operating costs, 29% had focused on improving customer retention and 24% had reviewed their margins.

Prosser says overall the biggest surprise was the confidence in the Australian and New Zealand economies.

“Australia and New Zealand had the strongest confidences out of all the countries, which we haven’t seen in the past few years,” he says.

“Global uncertainty has had a major impact on the other economies. Hong Kong is coming off the boil, as is Malaysia and Singapore.”

In 2014, the biggest priorities for small businesses are new customer marketing, revenue growth and customer retention, with just under half of all Australian respondents reporting these as top priorities.