New survey reveals business sentiment in current economy
Australian small businesses are less confident about their financial health than larger businesses, according to CreditorWatch’s Business Sentiment Survey.
The survey reveals that over eight out of 10 decision-makers at large businesses (82%) rated their business’s current financial health as “good” or “very good”, compared to 76% of medium-sized businesses, and just 45% of small businesses.
This sentiment is reflected in CreditorWatch’s June Business Risk Index, which highlighted a record low in the average value of invoices held by businesses — down 49.9% over the year to June 2024. This decline is attributed to decreased order values as businesses reduce inventory in response to higher prices and declining demand.
Since mid-2021, invoice payment defaults have been trending upward, indicating businesses are struggling to pay suppliers despite lower order values.
Regarding the current climate for businesses, just 31% of small business decision-makers rated it as “good” or “very good”, compared to 70% of large and 60% of medium business decision-makers. Meanwhile, 29% of small business decision-makers rated conditions as “poor” or “very poor”, against 9% for large businesses and 14% for medium businesses.
The financial and insurance sector showed significantly higher optimism, with 37% of decision-makers rating their business performance over the past 12 months as “very good”. This contrasts with 10% in the distribution sector, 15% in retail and hospitality, and 17% in construction.
The financial and insurance sector was also the most positive about current financial health, with 68% of decision-makers rating it as “good” or “very good”. In comparison, 21% of decision-makers in the distribution and travel sector rated their current financial health as “poor” or “very poor”, followed by retail and hospitality at 14%, and production at 13%.
CreditorWatch’s latest Business Risk Index shows that the outlook for businesses in the hospitality industry has worsened, with failures forecast to increase from 7.5% to 9.1%, or one in 11 businesses, over the next 12 months.
Patrick Coghlan (pictured above), chief executive of CreditorWatch, said the results highlight a stark contrast in financial optimism between large and small businesses, with smaller businesses feeling the brunt of economic pressures more acutely.
“Businesses are really hurting,” he said. “They are experiencing a combination of rapid price increases, a series of interest rate hikes, and rising wage costs. On top of that, cost-of-living pressures mean that consumer demand has fallen away.
“Our June Business Risk Index showed invoice values have plummeted by 49.9% over the past year, and payment defaults are rising. Industries like hospitality are hit hardest due to their reliance on discretionary spending. Smaller businesses, operating on tighter margins and with depleted cash reserves, are struggling the most.”
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