SMEs warned to invest during mining boom or miss out

Australian small businesses that fail to invest in their operations will struggle to capitalise on the expanded opportunities generated by the mining boom, according to a new report by PKF.

PKF today released the findings of its fourth annual Business & Population Monitor, which looks at the impact of Australian demographic changes on business.

Not surprisingly, the report shows concerns of global economic instability have stifled much-needed investment, and business owners remain risk-averse.

In fact, confidence levels among SMEs remain only slightly higher than those recorded during the global financial crisis, according to PKF.

Matt Field, PKF’s national director of enterprise advisers, says solace will come in the form of the minerals boom, the benefits of which will gradually spread to other sectors of the economy.

But according to Field, businesses that fail to increase investment will fail to fully capitalise on the opportunities afforded by the boom.

“In between Australia’s booming minerals sector and struggling trade-exposed industries sits the ‘middle sector’,” Field says.

“These are SMEs that neither benefit directly from the minerals boom nor face the challenges of the high exchange rate and weakened demand from advanced economies.”

“This sector includes commercial and industrial property, construction, housing, and a range of household services, business services and sectors servicing generalised business investment.”

Field says overall, these businesses account for more than half of the Australian economy. However, he says many of them are SMEs receiving very little attention.

“Many businesses in the middle sector haven’t regained the ground they lost during the GFC. In fact, capital expenditure growth for SMEs has fallen to its lowest level in 19 years,” he says.

“[This] indicates they haven’t invested in staff, equipment or buildings over the last couple of years as they maintain a holding pattern on investment and push ahead in cost constraint mode.”

According to Field, this lack of investment will “come back to bite” when things pick up in the second half of 2012 and many businesses don’t have the infrastructure to cope with demand.

“The anticipated increase in household spending and residential investment, driven by the minerals boom, means SMEs must get moving,” Field says.

“[SMEs must] make investment and employment decisions now in preparation for the increased demand.”

Field says while small businesses need to ensure they invest in their operations, start-ups in particular should assess their situation, namely their ability to spend.