• 79% of SMEs say cash flow issues cause the most sleepless nights, up from 73% in 2016. The opportunity cost of poor cash flow is staggering. With an average 17% revenue hit estimated by SMEs, East & Partners have extrapolated that poor cash flow costs the SME sector A$234.6 billion in 2017.
• SMEs are being squeezed at both ends, by customers increasingly paying late (a major issue for 31% of respondents) and suppliers cutting payment terms (the key stress factor for 19%).
• The issue that most impacts on cash flow continues to be red tape and compliance (nominated by 73% of SMEs and focused around BAS, the Fair Work Act and company tax concerns).

Cash flow is an increasing problem for the sector, and business owners are really putting in the hard yards (on average, spending 66 hours a week working on or in their business).

“Many business owners are cash-strapped, time-poor and confused about the options available to them to fund their growth,” Mr Smith said.

“With a declining property market and banks exercising caution, the concern is that a lack of credit could hamper growth prospects. Business owners will need to consider funding alternatives to traditional property secured lending. Those SMEs who find alternative ways to fund growth and master cash flow management will have a clear advantage over their competitors,” he said.

Continuing the trend of SMEs looking beyond banks to fund growth, 96% could name a key reason to borrow from an alternative lender, with fast credit approval and reduced compliance the main drawcards.

Almost one in 10 business owners (8%) say revelations from the Banking Royal Commission will prompt them to seek out non-bank alternatives.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said today that Scottish Pacific’s latest SME Growth Index identifies the issues most raised with ASBFEO by SMEs across the country.

“Extended payment times impact business cash flow, which is critical to SME day-to-day operation. Reduced cash flow impacts the ability to pay staff, superannuation and the quarterly BAS, and an overly complex workplace relations system inhibits employment, which in turn inhibits growth,” Ms Carnell said.

“The Index also points out SMEs are looking at alternatives to banks to access finance, including invoice finance, fintechs, government grants and crowdfunding. We’ve done considerable work in this space, recently releasing our Affordable Capital for SME Growth report and Borrowing from fintech lenders guide.”

• SME owners don’t clock off. Despite technical and digital innovations, more than 40% of business owners put in 60-80 hours a week on the job and one in five clock 80+ hours a week.
• Two-thirds of SMEs said their major cause of sleepless nights is not having enough time in the day to get everything done. This was the second biggest SME issue, only cash flow caused more concerns.
• A growing number of SMEs (25%, up from 17% in 2016) are worried about the potential for sudden disruption of their business model.

• More than a third of respondents (37%) identify as growth businesses – and they are really feeling the pinch from cash flow issues. 59% of growth SMEs are seeking additional finance to fund projected growth, with one in three looking to borrow $50,000-$250,000 and a similar proportion seeking $500,000-$2million.
• About one-quarter of SMEs expect revenue to hold steady, and one-quarter expect revenue to decline, by an average of 6%. For those predicting revenue decline, the range (5-13.5%) is almost double that of 2014.

By far the most common way for SMEs to fund growth is to use their own funds (89%), ahead of borrowing from their primary bank (23%), using alternative lenders (15%), taking on new equity (13%) and borrowing from secondary banks (10%).

“It’s crucial to have reliable working capital, yet nine out of 10 SMEs reach into their own pockets to fund growth rather than use options that help them retain working capital within their business. Why are so many SMEs using inflexible, debt such as personal credit cards instead of more sustainable funding solutions that would allow them to grow without such intense cash flow pressures?” Mr Smith said.

Scottish Pacific (ASX:SCO) is Australasia’s largest specialist working capital provider, who for 30 years have been lending to the owners of small, medium and large businesses, with revenues ranging from $500,000 to $1 billion. Access a free copy of the SME Growth Index at www.scottishpacific.com/news/research

Media contact:
Kathryn Britt