Why are more than 90 percent of SMEs unhappy about their cashflow?
Cashflow issues are costing SMEs a potential $200 billion in lost revenue each year.
East & Partners has based these revenue estimates on ABS data that total revenue for the A$1 – 20m SME segment is A$1.3 trillion, and given 1150 of 1250 SME survey respondents indicated that better cashflow could have improved their revenue by an average of 18.7 percent, this has been extrapolated to indicate $222.5 billion additional revenue.
Three-quarters of SMEs who identify as being in growth phase say better cashflow would have produced revenue growth of 10 to 50 percent in 2016, Scottish Pacific CEO Peter Langham said.
Since September 2014 Scottish Pacific, Australia’s largest specialist working capital finance provider, has engaged specialist research firm East & Partners to conduct six monthly polls of more than 1200 small to medium enterprise leaders across all states and key industries, to test SME sentiment and concerns.
The Scottish Pacific SME Growth Index out today shows a record percentage of businesses plan to use non-bank financing (22 percent, doubling from 11 percent in Round One, September 2014). This contrasts with declining bank borrowing intention (29 percent, significantly down from 38 percent in Round One).
As well as the growing intention to fund business by using non-banks, just under 95 percent of SMEs indicated they planned to use their own funds to support their business, and once again respondents cited access to and conditions of credit in their top three barriers to business growth.
“It seems the day is approaching when non-banks will match or pass the banks as the first port of call for small to medium business funding,” Langham said.
“With interest rates at record lows, SME access to credit should not be a problem. And yet SME owners and leaders indicate that their full credit appetite is not being fulfilled.
“In light of ASBFEO’s Small Business Loans Enquiry which highlighted the need for a fast solution for small businesses at loggerheads with their banks over access to finance, it’s important for SMEs and their advisers to be across the full range of finance options available to them,” he said.
Only 8.5 percent of all SMEs reported that they were satisfied with their cashflow (just 5 percent of growth SMEs were satisfied). Seven out of ten, whether growth, consolidating or declining SMEs, said better cashflow would have improved 2016 revenues by more than 5 percent.
Seven out of ten growth SMEs indicated improved cashflow would have produced at least 10 percent revenue growth, with almost a quarter saying they could have achieved 25-50 percent revenue growth.
“Regardless of whether an SME had a growth or negative growth forecast, this clearly indicates the significant impact improved cashflow would have on revenue growth,” Langham said.
“The smaller the business, the greater the impact of improved cashflow, with strong indications that improving cashflow early in the life of a business has a major long-term impact on revenue growth.”
96 percent of $1-5 million revenue businesses agreed that better cashflow would have increased their 2016 revenue (with an average improvement of 23 percent); 85.5 percent of $15-20m businesses agreed, with an average revenue increase of 11 percent.
Mr Langham said the stark reality for CFOs and corporate treasurers in the SME sector was that nine out of ten firms say they could have better cashflow management.
“The unhappiness around cashflow is higher for growth businesses, as opposed to those with steady or declining revenue. It is cited as a major growth barrier by 56 percent of growth SMEs, but only by 20 percent of SMEs in a consolidation or declining growth cycle,” he said.
Langham said that in this round of the Scottish Pacific SME Growth Index, Australia’s SME owners seem to have bounced back from the pessimism they voiced in the previous round, September 2016.
“SME business confidence is on the rise, but fragile. Trend analysis shows just over 49 percent of SMEs are expecting revenue increases in the first half of 2017, a drop from 63 percent in our first round in late 2014. Since 2014, average positive revenue forecasts for growth SMEs have remained at around 4 percent, yet the average revenue drop predicted by negative growth SMEs has blown out from 5 percent to 8 percent.”
SMEs listed their top three barriers to growth as high or multiple taxes (71 percent), credit conditions (65 percent) and credit availability (61 percent). Key growth drivers are core customers (41 percent), strong staff (38 percent) - and more concerning, good luck (31 percent) and ‘just following our nose’ (37 percent).
“We’ve seen an increase in the number of SMEs citing credit conditions as a growth barrier, from just over 50 percent in 2014 to now above 60 percent,” Langham concluded.
Timeline: India takes unicorn leap with six in five days
We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.
April 5: Meesho
India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.
April 6: CRED
Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.
April 7: API Holdings / Groww
The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.
April 8: ShareChat
New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.
April 9: Gupshup
AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels.