The latest Business SA – William Buck Survey of Business Expectations shows confidence has fallen for the third consecutive quarter.
On first reading it paints an alarming picture for the local business sector and the state. However after much analysis and the temptation for hand-wringing, I really don’t think things are that bad.
Yes, confidence has fallen significantly over the past 12 months to what could be considered a dramatic low, but it’s come from a similarly dramatic high. Only a year ago we had the highest levels of confidence since the troubled times of the late 2000s.
On the face of it, the Business SA – William Buck Survey provides some concerning insights:
- SA business confidence fell a further 12.8pts over the past quarter and sits 42.6pts lower compared to September 2018.
- Business conditions, sales and revenue also fell.
- 43.8% of SMEs expect profitability to take a further hit in the coming quarter.
- 60% expect the SA economy to weaken further in the next 12 months.
Uncertainty influences confidence, and it’s logical to see a slide when major economic factors underpin the way we live and work.
Business owners and tenants are facing changes to land tax, the continuing drought is affecting the majority of the nation, the economy is tight, interest rates have been cut to historic lows and there’s a steady stream of commentary around international instability – whether it’s Brexit, Trump or US/China relations.
But the bigger question to be asked by all businesses when they start talking confidence is whether their own circumstances are being affected by internal factors – such as overheads, sales, profitability and wages – or incessant external noise.
As a business owner it’s important to control what you can – whether it’s executing growth plans or focusing on productivity.
We can all take confidence in that SA has faced similar headwinds in the past and prevailed.
When times were tight a decade ago, business owners pulled up their socks and played to the best of their ability. They got on with doing business and shut out the external noise.
In the national and global context
South Australia is not alone in facing this challenge.
Businesses right across the nation and globally are doing it tough right now. The reality is we are operating in a low growth global environment.
But it’s an environment that still presents opportunities for those willing to back themselves, invest and take measured risk. Research and Development is one such growth lever.
As part of the September quarter survey, we asked businesses about their R&D intentions.
Almost 80% say R&D is important for future growth. The reasons they gave included:
- Need to stay relevant
- Keep up with competitors
- Increase sales
- Create new products
- Generate efficiencies
- Stay ahead of trends and innovations.
Acknowledging the importance of R&D is one thing, carrying it out is another.
Despite the high level of awareness, 1 in 5 admit they don’t spend anything on R&D and 67% spend less than 5% of revenue on R&D.
While some respondents indicated the cost of R&D was a hurdle to their investment plans, 72% say they have never sought Government funding or support in the form of grants or R&D tax incentives.
On a more positive note, 37.8% say they will increase R&D in the next five years.
However, a concerning disconnect is emerging.
R&D is a key growth driver for individual businesses and the entire State economy. At a time when businesses face tough economic conditions, every dollar of financial support counts.
Yet the survey results show that many SMEs are missing out on genuine opportunities for financial assistance to unlock R&D and ultimately realise their growth potential.
There is help out there
As a leading accounting and business advisory firm, William Buck is well placed to assist South Australian SMEs invest in R&D with greater confidence.
We have expanded our local R&D Incentives and Grants team to help more local businesses identify and source potential funding support.
The R&D tax incentive can be significant and, in the current economic climate it’s an avenue worth exploring.
For further information
Jamie McKeough is the South Australian Managing Director of William Buck, a leading accounting and advisory firm. Jamie can be contacted on (08) 8409 4333 or email: firstname.lastname@example.org