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ISCOVER
The SME landscape is ripe with opportunities for brokers, as a new survey finds they’ve leapt up the charts as advisers of choice to businesses keen to secure funding.
In a stunning return from the challenges of the past couple of years, Australian SMEs are highly upbeat about 2023 with confident revenue and growth expectations. However, they’re being shadowed by rising inflation and their eagerness to recruit is stymied by wage expectations in the market.
The Banjo SME Compass survey is an annual deep dive into the world of Australian SMEs, and examines their experiences, plans and opinions on multiple key indicators including revenue, employment and growth. The 2023 survey is our third successive Banjo SME Compass, with a record number of respondents – over one thousand businesses across the nation. It’s chock-full of valuable insights into the beating business heart of Australia, and importantly, details where the sector is heading in the short-to-medium term.
Of the many findings, the 5 key take-homes are:
• what’s causing a strong sense of optimism among SMEs
• how inflation is impacting them and what they’re doing about it
• who they’re recruiting and why it’s changed
• why they’re looking for broker services more than ever before
• what kind of funding they’re looking for.
Strong sense of optimism
A resounding 70% of SMEs expect their revenue to grow in 2023, the highest result since we’ve been doing this survey, with a bullish one in five businesses forecasting growth of more than 30%. Those expecting growth say the leading drivers are product development and new technology, both of which require investment. Still on the investment theme, many SMEs’ longer term confidence is focused on plans to expand or diversify.
This confidence is pretty well-founded, as the proportion of SMEs achieving or exceeding their revenue targets is at a 3 year high of 65%.
Impact of inflation
Inflation is currently the biggest speed hump on the road to business growth, with 2 out of 3 businesses feeling the impact. Those who expressed the greatest concerns were the fitness, hospitality & tourism, and beauty & wellbeing industries. But while inflation may be the biggest contributor to SME insomnia, 8 in 10 have developed tactics to counter it and ensure their business’ survival. This includes increasing prices or reducing costs, depending on the type of industry.
The changing face of recruitment
Sixty two per cent of SMEs intend to hire this year and, on average, increase their headcount by up to 6 staff. In 2023 offshore recruiting has plummeted, with significantly more businesses turning instead to the local workforce. Healthcare, hospitality and manufacturing are leading the demand.
According to one senior leader in hospitality and tourism who took part in the survey, “Increased staffing post Covid will help us to recoup headcount and look to drive sales in the [coming] year.”
Yet there’s a significant challenge facing small and medium businesses, with 1 in 3 struggling to recruit. Many are having to offer increased pay to attract the right calibre of staff, likely driven by wage growth resulting from inflation. This is compounded in some industries by labour skill shortages.
This points to potential demand for working capital solutions to support effective and much-needed recruitment.
Soaring demand for brokers
The number of businesses turning to brokers for help with securing finance is on an upward trajectory, increasing by 10% in the last year, and the only category of adviser to grow substantially. Brokers and accountants are now regarded as the key sources of assistance in getting finance.
The key ways brokers are seen as adding value are by helping the business get a suitable interest rate, and simplifying or smoothing the borrowing process for them.
Broker Stuart Donaldson of Accendo Financial commented, “There is a significant increase in SMEs using or intending to use a commercial broker. This is an opportunity to expand and build, and take advantage of this very clear trend”.
Funding
Half of all the SMEs surveyed intend to leverage external funding to drive growth this year, with metro-based businesses at the forefront of this. Of the intended sources of funding, business loans are the most popular, favoured by 3 in 10.
Businesses overall have a slight preference for secured financing, but around half are seeking unsecured funding. The demand for unsecured finance is led by consulting, advertising, real estate, hospitality and education/ training businesses.
It’s still a frustrating process for many, who refer to the length of time taken by the more traditional lenders to either give a decision, or provide the funding. Brokers have a golden opportunity to help their clients clear those hurdles, through alternative lending sources.
Stuart Donaldson agrees, "Any ambitious finance broker will interpret from this survey there is a great opportunity to work to improve how they meet the needs of their clients."
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