Cautious optimism in small business 2021 revenue forecasts

Despite revenue growth forecasts being at a record low, ScotPac Small Growth Index data highlights a resilient SME business sector with some industries and states upbeat about 2021 prospects.

Small business research, conducted twice a year by East & Partners on behalf of, Australia’s largest non-bank SME funder, points to an uneven national recovery from the pandemic.

ScotPac CEO Jon Sutton said of the 1252 small businesses with a turnover of $1 to $20 million, surveyed fewer than half (47%) are expecting revenue growth through to April 2021, with a quarter forecasting revenue to decline.

“In the midst of Australia’s first recession in 30 years, a record low number of SMEs have positive revenue growth aspirations,” Mr Sutton said.

There was massive variance, by state and industry, in SME revenue forecasts for early 2021:

NSW: 57% expect positive growth     13.5% negative growth        29.5% no change

Vic:    4.6% positive growth                69.1% negative growth        26.3% no change

Qld:   42.7% positive growth               8.9% negative growth          48.4% no change

WA:   80.7% positive growth                3.5% negative growth          15.8% no change

SA/NT: 76.3% positive growth             11.3% negative growth         12.5% no change

Note: SME respondents were polled during September and early October 2020 – a time when Victoria was operating under one of the strictest COVID-19 lockdowns in the world.

“Despite seven out of 10 Victorian SMEs forecasting revenue to decline, we would expect the growth prospects of Victorian business owners may quickly improve now restrictions are easing,” he said.

Of the major industries analysed for the SME Growth Index, the mining sector has been relatively unscathed and is most bullish about 2021.

The transport industry also shows optimism.

Mining:                  87.9% of SMEs expect positive growth (average growth forecast +8%)

7.7% forecast a decline (average decline forecast -0.6%)

Transport:             60.2% expect positive growth (+3.4% average)

12.2% expecting revenue decline (-2.1% average)

Manufacturing:     37.1% forecast positive growth (+1.2% average)

29.3% expecting decline (-3.8% average)

Wholesale:            37% expect positive growth (+ 2% average)

31.5% expecting revenue decline (-2.5% average)

Retail:                    33.5% forecast positive growth (+1.7% average)

38.7% expecting revenue decline (-4.9% average)

Mr Sutton said fewer than one in 20 Victorian small businesses forecast revenue to grow. Western Australia’s forecasts held up strongly. After being the worst-hit state early in the pandemic, NSW has bounced back and WA, SA and Queensland remain reasonably buoyant.

“Revenue forecasts for the small business sector are less ‘doom and gloom’ than might be expected after such a challenging 2020, and highlight the resilience of the SME sector,” Mr Sutton said.

“Since March 2020, the number of SMEs forecasting a revenue decline has moved only one percentage point, to 23.8%, despite an immensely challenging year. While this is reassuring, we note that SMEs still recorded a record low positive growth average of just +0.1%.”

Struggling SMEs supported, growth SMEs thwarted

SME Growth Index data supports the premise that targeted government stimulus measures such as JobKeeper created scaffolding for SMEs who were already facing the greatest financial difficulty.

It is the other end of the spectrum – high growth SMEs – who have had their revenue expectations reined in by the pandemic.

“Those expecting revenue to grow are forecasting an +3.3% average result, with the widest ever range reported (+1.0% to +8.8%),” Mr Sutton said.

“Those expecting their revenue to fall are forecasting an average -6.2% revenue decrease.”

SMEs’ perception of their own business phase clearly reveals where the pandemic has negatively impacted sentiment. For the first time, there are more SMEs self-identifying as being in a stable business phase (33.6%) compared to those in an outright growth phase (32.2%).

“It will be interesting to see whether revenue forecasts were kept artificially high because Federal Government’s stimulus measures were still in place, allowing many SMEs to ‘keep the lights on’ without having to commit to investing significantly in their businesses,” Mr Sutton said.

“Those small businesses who have confirmed a clear strategy and who have secured appropriate funding will put themselves in the strongest position to face what 2021 has in store.

“It’s vital for small business funders, governments and SME bodies focus attention on the need for business owners to plan for 2021, and not just rely on the whims of the market, for their survival.”

Industry data: two-speed economy on show

• The retail SME sector is evenly split between those expecting revenue to grow, decline or remain steady. SMEs forecasting revenue to grow may be starting from a low base given shutdowns in 2020.
• Transport SMEs’ relative confidence stems from the fact that transport has been the big winner from COVID-19 due to a surge in e-commence.
• Manufacturing and wholesale industries saw an immediate impact in sales volume at the start of the pandemic, with signs of recovery during June and July followed by another decline in August and September during Victoria’s stage 4 lockdown.