The SME blind-spot - revenues are being propped up
In our recent wave of interviews with business owners across Australia, one issue emerged that is simply an enormous blind-spot to SMEs. It is a big ‘watchout’ going forward. Like all insights, it is actually pretty clear when it is pointed out … but it is hidden from business owners. They just don’t see it …
When discussing the incredible government stimulus that they have been provided – for which they are genuinely appreciative – business owners realise that it has been ‘THE difference’. It has enabled them to manage their costs because, quite frankly, their costs have been subsidised by the government. Although their revenues have (on the whole) fallen, so too have their costs and therefore for most it isn’t the train-wreck that it could have been. But here’s the problem. They don’t realise that their own customers are also benefitting from this government stimulus. That is, SMEs view JobKeeper as a way to reduce their own costs and thereby maintain employment but they don’t realise that their very own customers are themselves the recipients of JobKeeper … and therefore not only are SME costs being subsidised but SO TOO ARE THEIR REVENUES.
One panellist talked about currently sitting on 65% of typical revenue … which is expected to shortly move to 80% … but what they don’t realise is that some of this ‘65% of our revenue’ is coming from people who are receive government support. What happens when this support dries up? The answer, of course, is that revenues may not go to 80% as expected but rather, back to 50%. Will this happen in September or October? Possibly not. Maybe not until 2021. But at some stage, the support WILL dry up.
In fairness, some think their revenue may drop a bit in the short term – in line with general market conditions, customer nervousness, seasonality, lockdowns or other factors – and therefore it isn’t surprising that the ABS identified that a quarter of SMEs expect their revenue to decrease in the next month (ABS Cat 5676.0.55.003). But the bigger question isn’t around the next month, it is around the next 6 months and beyond. Very few honestly think that their revenue won’t be AT LEAST what it is now over that time frame.
We are hoping that this ‘blind spot’ will be resolved. As we head into reporting season for many publicly listed companies, there will be increasing press around the fact that sales figures of large businesses have been inflated due to stimulus. Maybe SMEs will see this and realise that it also applies to their own business. But most haven’t realised this so far. This a huge concern.
Conclusion
Business owners are not financially or emotionally prepared for the fact that their revenue can drop over the longer term, from this point. As simple as it seems, they haven’t joined the dots to realise that not only are their businesses recipients of government stimulus but so too are their customers. And at some stage the stimulus will be further scaled back. Many will see a crunch to their revenue line that they are not anticipating, and it will make life very difficult for them.
