Time to dig in

The central message from MYOB’s latest business monitor is that Australian entrepreneurs are digging in for a long, tough fight before economic conditions improve – and they won’t be taking many holidays while they wait for this recovery.

Just 19% of the 1,200 SME owners and managers surveyed expect business conditions will improve in the next 12 months, the worst result since the March 2009 survey, when just 16% were tipping an improvement in the coming year.

Conditions in Europe might be stabilising, interest rates might be on their way down and unemployment may be sitting near historic lows, but you simply can’t convince entrepreneurs that conditions are getting any better. Indeed, the monitor suggests they are getting worse – last year 35% of entrepreneurs expected a pick-up in the next 12 months, and in 2010 it was 54%.

The pessimism stems from the numbers that entrepreneurs are seeing in their accounts. Just 20% of SMEs surveyed said their revenue increased, while 40% said their revenue fell and 40% were steady.

Over the next year, 24% of those surveyed are expecting revenue to drop, while 30% are hoping for a rise.

To me, this suggests there are hundreds of thousands of entrepreneurs out there who are remaining in a holding pattern. Not quite survival mode, but not growth mode either.

These entrepreneurs are not seeing conditions in the non-mining economy improve as quickly as the RBA and others had expected and to them, low rates and low unemployment mean little.

The sales are just not coming through the door at a rate that gives SMEs the confidence to grow.

The concern is how long this lack of confidence will last. Right now, it is hard to see a catalyst for a sudden turnaround, unless consumer confidence suddenly spikes, perhaps due to a big rate cut (unlikely) or a sudden cash splash by the Government (very unlikely).

Could this gloom persist for 18 months? Two years? What will it take to change the psyche of the Australian entrepreneur?

The Government could help, although how fast any help gets here is a big question.

The key loss carry back measure put forward by Wayne Swan’s Business Tax Working Group (which would allow small businesses to offset tax losses by claiming back tax paid on profit in previous years) is a great idea, although the suggestion that it be limited to incorporated businesses is too limiting.

The fact that the measure isn’t recommended to start until 2013-14 is also a problem. Right now, that seems a long way away for most business owners. Help is needed now.

Labor has been making a major pitch to the SME community in recent months, appointing new Small Business Minister Brendan O’Connor to Cabinet and creating the national Small Business Commissioner.

Both are worthwhile initiatives, but the MYOB report suggests they’ve done nothing to change the SME community’s view of the Government – 52% of respondents expressed dissatisfaction with the Government, up from 38% two years ago (although down from 56% in October 2011).

With an election looming next year, it seems SMEs won’t be the only ones digging in for a tough period – O’Connor and the team charged with improving Labor’s SME vote will be in for a big 12 months too.