SMEs developing more resilience as a result of the pandemic

A new study reveals that Australia’s SMEs have become more resilient as a direct result of the challenges they have faced from Covid-19.

MYOB’s latest SME Success Report shows that 78 per cent of Aussie SMEs have the same or more appetite for risk and more than half (52 per cent) have higher business confidence than before the pandemic.

MYOB CEO Greg Ellis said that the data provides rich insight into the strength of Australian SMEs, and their ability to withstand future disruption.

“Now we’re moving closer to Covid-normal, we can look back on how SMEs have fared throughout this challenging period, and how equipped they are to operate in this environment,” Ellis said.

The balance sheet data in the Current Ratio Index indicates SME cashflow levels stayed high during the first year of the pandemic, after being initially bolstered by the economic stimulus measures introduced by the Government in April 2020. In November 2020 the index was 23.4 percentage points higher than the January 2020 baseline and mostly remained that way, up to 25.8 per cent in December 2021.

Profitability metrics did not see such significant change but are still considerable improvements. In May 2020 gross profit margin was 7.5 per cent higher than in January 2020 but dropped a few points and ended 3.6 per cent up in December 2021.

“It’s encouraging to see stability within SMEs, even after Government funding was reduced, improving their resilience against further challenges,” Ellis said. “Holding onto higher cash reserves for emergencies bolsters resilience, though investing in growth opportunities and keeping the economy flowing is what will keep the SME sector thriving long term. The survey results show strong levels of confidence, which is an encouraging sign for long term recovery.”

Around the onset of the pandemic, SMEs invoices were paid faster with the On-Time Invoices index 8.8 per cent up in November 2020 compared to January of that year. Surveyed SME owners and operators said the top reasons for faster payments include applying more effort to ensure timely payment (40 per cent), customers being more conscientious (39 per cent) and changing how their invoices are issued (38 per cent).

“It’s unsurprising that business owners would be more conscious of invoice payments when they’re in survival mode during the pandemic,” Ellis said. “Seeing customers more conscientious and supportive of SME invoice payment times is a welcome outcome and one that will greatly assist with cashflow into the future.

“If the last two years have taught us anything it’s to expect the unexpected. For the country’s SMEs, moving to Covid-normal has meant continuing adaptation of business operations,” Ellis added. “While it’s by no means been an easy road, the resilience of the sector is strong and will hold them in good stead for the next chapter.”

The SME Success Report is comprised of four years of anonymised data insights from business management platform MYOB, captures key resilience indicators in the form of a Resilience Index. The Resilience Index is made of sub-indices tracking balance sheet strength, gross income margin and invoice payment times to provide an overarching resilience score.

This article was first published on sibling website Inside Small Business.