After a robust start to the year, the latest SME Sentiment Tracker from business market research firm Fifth Quadrant in partnership with Ovation reports that 30 per cent of SMEs had lower revenue in March compared to 12 months earlier. Profitability has also diminished, with 27 per cent of SMEs experiencing a loss, an increase from 22 per cent the previous month.
The report attributes these figures to rising concerns regarding inflation and interest rates at 74 per cent compared to 68 per cent last month, as there is noted growing apprehension among businesses that the anticipated rate relief may not materialise as soon as hoped.
To combat these issues, many SMEs are reporting that they continue to adopt efficiency and cost-cutting measures, including discontinuing unprofitable products/services (26 per cent) and streamlining business operations (23 per cent).
The report also notes that employee data is weakening, with 19 per cent of SMEs reporting fewer employees than 12 months earlier. Consequently, the proportion of SMEs anticipating staff increases over the next three months has also declined and only 20 per cent of SMEs are currently seeking to fill positions, compared to 27 per cent in January.
Growth expectations remain robust with 37 per cent of businesses targeting growth over the next 12 months. However, this marks a decline from the 44 per cent recorded last month. Notably, growth-oriented businesses are acutely aware of the numerous challenges that could temper their growth expectations, with the economic outlook (42 per cent) being the primary concern, followed by changing customer behaviours (34 per cent) and workforce productivity issues (19 per cent).
Despite ongoing caution, SMEs are maintaining their investment in capital equipment, a trend anticipated to continue as they seek to capitalise on tax concessions available before the financial year ends. Over a quarter, 27 per cent, of SMEs will increase their capital investment over the next three months up from 20 per cent last month. The report interprets this as an example of how SMEs are striking a careful balance between managing costs and seizing opportunities to drive business growth.
However, the demand for additional finance over the next three months has decreased to 12 per cent, down from 20 per cent in December 2023. The report expressed belief that this could mean that SMEs intend to rely on cashflow and existing financial facilities for their investment needs and to minimise debt exposure until interest rates decrease.
“After a wave of optimism to start 2024, SME sentiment is more measured this month with revenue declining and expectations regarding lower interest rates being reevaluated,” Fifth Quadrant, Managing Director, James Organ, commented. “Weakness in employee data is also notable. Despite these challenges, a significant portion remain growth-focused, cautiously balancing investments in capital equipment against a backdrop of economic uncertainty and shifting customer behaviour.”
