Australia's mid-size businesses are pessimistic about Australia's economy and business conditions for the next year, according to new report.
The report also discovered, among other findings, that more than nine in 10 mid-market businesses expect challenges with cash flow over the 12 months, and businesses that consider themselves market leaders are far more likely to borrow than those that don’t.
The Economy and Finance Report – the second installment in the Bankwest Future of Business Series – surveyed 85 mid-size businesses with a minimum annual turnover of $1 million. Each question spanned two time periods: the next year and the next five years.
The report found that over the next year:
* 36 per cent expected the economy to slow down, compared to 29 per cent expecting it to speed up. The remainder expected no change;
* 38 per cent expected business conditions to get worse, while only 29 per cent expected them to get better;
* 53 per cent of respondents expected their business revenue to increase, while 17 per cent expected it to decrease;
* The biggest threat to mid-market profitability would be changes in government regulations, followed by uncertain economic conditions, imports and unpredictable consumer spending.
However, the respondents were far more optimistic about the medium term. Over the next five years:
* 60 per cent of respondents are expecting the economy to speed up;
* 63.5 per cent are expecting business conditions to improve;
* 70 per cent are expecting business revenue to increase.
The report stated that new product development would be the leading source of revenue growth for mid-sized businesses, with 59.3 per cent citing this as the driver of revenue growth. Client development and natural growth in the market came second and third.
"Forward-looking mid-market businesses expect to be in a strong position over the next five years," said Sinead Taylor, manager of business banking at BankWest. "This report shows us there is bullish expectations for the mid-market and we hope these insights encourage other mid-market players to adopt confident business strategies."
Despite the bullish expectations, cash flow remained an ever-present concern for the businesses surveyed. "The overwhelming majority of respondents believe they will face challenges maintaining cash flow," said the report. Only 7.1 per cent of respondents did not expect cash flow problems over the next year, and only 5.9 per cent did not expect problems over the next five years.
The biggest threat to cash flow over the next year, and the next five years, came from increased operating costs, the report found. The other major threats in both periods were reduced revenue, losing a key customer, increased competition, declining margins, government red tape, compliance and tax administration, delays in invoices being paid, and tax bills.
New products/services and expansion into new markets were the most common ways that businesses would deal with cash flow challenges.
The paper also reached some interesting findings with regards to borrowing:
* Businesses that consider themselves market leaders are far more likely to borrow. Of such businesses, 24 per cent said they would borrow more in the next year. The same proportion also said they would borrow more in the next five years.
* By contrast, of businesses that did not consider themselves market leaders, only 9.7 per cent said they would borrow over the next year and only 12.9 per cent said they would borrow over the next five.
* Of businesses planning to borrow money for the next year, 45.9 per cent said they were doing so to grow the business; 29.5 per cent said they needed more liquidity; and 14.8 per cent said they needed to pay down an existing loan.
