There is an undercurrent of optimism in the six-month revenue forecasts outlined by Australian small businesses.

Considering the depth of the challenge created by the pandemic, as a whole the small business sector has rebounded well.

However the extremes of revenue growth and decline that have been forecast by SMEs around the country highlight the uneven nature of this recovery.

In the March 2021 SME Growth Index almost half the 1253 business owners polled (48.4%) anticipate positive revenue growth through to August 2021.

The average revenue growth forecast is 4.1%, an increase of eight points from H2 2020, reflecting a strong “bounce back” in confidence for many small business owners.

This average revenue forecast is on par with the latest OECD forecasts that the Australian economy will grow 4.5% through to 2022.

Market-wide, SME revenue forecasts ranged from -10% to +9.1%, creating a modest overall average revenue increase of +0.9% for the next six months.

Pinpointing only those SMEs forecasting positive revenue, there was a new high distribution range this round of 8 percentage points (from +1.1% to +9.1%).

Just over a quarter of all SMEs (26.9%) believe their revenue will remain unchanged, down from the 29.2% forecasting unchanged revenue in late 2020.

One in four small businesses (24.7%) say their revenue will fall, by -5.5% on average.

Over recent years the Index has recorded a steadily rising proportion of SMEs forecasting their revenue to decline. This is cause for concern.

The proportion of SMEs forecasting negative change was 24.7%, up from 23.8% in late 2020.

While more small businesses are forecasting revenue decline it is some consolation that the average decline forecast has moved from -6.2% to -5.5% over the past six months.
An uncertain long-term pandemic recovery path appears largely confined to those SMEs weaning off government stimulus or coping with regional issues or sector-specific challenges, in particular for tourism, accommodation and hospitality.

Victoria is the state most severely impacted, with SMEs still reeling from the impact of prolonged lockdowns in 2020.

Almost two-thirds of Victorian small businesses (63%) believe their revenues will decline, by -6% on average.

Only 10.5% of Victorian SMEs are forecasting growth, but those that are optimistic expect to rebound strongly from a dire 2020 with a bullish +11.1% growth.

SME perception of their business phase

When asked to identify their current business phase 34.8% of small businesses said they identified as growth, 31.7% as stable, 14.9% as contracting, 9.7% as start-up and 8.9% as consolidating.

In the November 2020 Index, for the first time more businesses identified as being stable rather than being in growth mode – but that anomaly was reversed this round.

The proportion of SMEs identifying as being in a contracting business phase hit a new high this round, at a critical moment on the road to long-term COVID recovery.

So while the revenue outlook for the small business sector is improving, many SMEs are not out of the woods yet.
For the businesses facing uncertainty, it’s crucial to focus on getting expert advice (for example, from their accountants, bookkeepers and brokers) and putting in place sufficient funding to support recovery and growth.