NZ Small Businesses Buck the National Trend

Media Release
25 November 2013
NEW ZEALAND SMALL BUSINESSES BUCK THE NATIONAL TREND

Improved economic confidence, robust economic data, surging property prices and low interest rates have failed to translate into a serious upswing in New Zealand small business confidence, a new survey has found.

The CPA Australia Asia Pacific Small Business Survey is an annual snapshot of small business confidence throughout the region – part of a longitudinal study that began in 2009.
CPA Australia chief executive, Alex Malley, said the New Zealand results were a surprise but certainly not a major cause for alarm.

“The fact is that the New Zealand economy is strong and on most indicators this strengthening looks set to continue to 2014.

“However, despite this positive outlook it appears that confidence has not yet translated through to the small business sector. While 57 per cent of small businesses say they will invest in growth in 2014, this is down on last year’s figure. Fewer small businesses plan to put on more staff in the year ahead.

“While the sector is traditionally conservative, it appears that difficult trading conditions and increasing cost pressures are holding the sector back. We’d certainly encourage policy makers to continue to look at ways to ease these concerns to really get the sector soaring in 2014.”

However, Mr Malley said while the New Zealand result was down slightly on the previous survey, confidence in both Australia and New Zealand was strong in comparison to nearly all the Asian markets surveyed.

“Small business confidence in Hong Kong has virtually collapsed compared with last year’s survey and is also down significantly in Malaysia and Singapore and to a lesser extent, Indonesia.

“While Indonesia was the strongest of the markets surveyed, results are still down on the last survey.”

Mr Malley said the causes of these dips varied in each location however there was little doubt that global economic volatility was a factor that would remain a challenge throughout the region in 2014.

The CPA Australia Asia Pacific Small Business Survey is available for download at: http://www.cpaaustralia.com.au/smallbusiness

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Note to editors
A fact sheet summarising the NZ results is attached.

The CPA Australia Asia-Pacific Small Business Survey 2013

Key findings for New Zealand

While small business confidence in the New Zealand economy for 2014 is up from 2013, this confidence is yet to translate into confidence in their business

• New Zealand small businesses are the third most confident of the markets surveyed in their local economy in 2014 (behind Indonesia and Australia). This positive response may be due to recent robust economic data, surging property prices, low interest rates and the rebuilding of Christchurch after the 2011 earthquake.

• Of the New Zealand respondents to the survey, 53 per cent think the economy will grow in 2014, up from 46 per cent in 2013 and 48 per cent in 2012.

• Despite the increase in confidence in the New Zealand economy, the survey is yet to show any comparable increase in the growth prospects of New Zealand small businesses. In fact, the percentage of New Zealand businesses that expect their business to grow is down slightly.

• The percentage of New Zealand small businesses that expect to grow in 2014 is 57 per cent, down from 64 per cent in 2013. The percentage of businesses that expect to decline or shut down in 2014 is 13 per cent, up from 10 per cent in 2013.

• New Zealand businesses under five years of age are more likely to be positive about their own growth prospects than more mature businesses.

Drivers of business growth and barriers to success

• Fifty-seven per cent of New Zealand small businesses expect to grow in 2014. An expectation of sales increases is fuelling optimism, with 60 per cent of respondents nominating this area as a driver of growth in 2014. Interestingly, New Zealand respondents were the least likely to nominate government support or incentives (2 per cent of those respondents) as a reason they expect their business to grow in 2014.

• More than one third of New Zealand businesses found trading conditions more difficult than expected in 2013.

• Reflecting the relatively small reliance New Zealand small businesses have on external funds, it is not surprising that New Zealand small businesses are significantly less likely than respondents from Asia to nominate easy access to finance as a driver of growth in 2014.

• The most common reasons 40 per cent of New Zealand respondents do not believe their business will grow in 2014 (not change, decline or shut down) are an expected poor economic environment (28 per cent of those respondents) and increasing costs (27 per cent of those respondents). A sizeable portion of New Zealand respondents specified that they were not seeking to grow their business or, in some cases, shrinking it in preparation for retirement.

• New Zealand respondents were the least likely of the markets surveyed to nominate political instability (2 per cent of those respondents), increasing rent (3 per cent of those respondents), lack of government support or incentives (5 per cent of those respondents) or overregulation (8 per cent of those respondents) as reasons for no business growth in 2014.

• New Zealand respondents were significantly more likely to nominate fuel costs (55 per cent of respondents) as the cost having a detrimental impact on business in 2013 than any other cost. Utility costs were nominated by 35 per cent of respondents as having a detrimental impact on their business in 2013. New Zealand businesses were the least likely of the markets surveyed to nominate staff costs and rent as having a detrimental impact on their business.

New Zealand small businesses did reasonably well in responding to the business environment they faced in 2013, however there is scope for improvement

• The issues that most likely shaped New Zealand’s small business environment in 2013 are increasing costs (36 per cent of respondents) and business conditions being more difficult than expected (31 per cent of respondents).

• New Zealand small businesses were significantly less likely to nominate increased competition (22 per cent of respondents) as an issue shaping their environment than respondents from Asia.

• New Zealand businesses that have traded for more 20 years were significantly more likely than other New Zealand businesses to state that their business environment was shaped by tougher than expected business conditions and increasing costs.

• New Zealand small businesses were most likely to respond to their environment in 2013 by focusing on:

o increasing marketing (37 per cent of respondents)

o growing their business (36 per cent of respondents)

o improving customer retention (33 per cent of respondents)

Given most New Zealand respondents believe growth in 2014 will come from increased sales, CPA Australia expects marketing (including retention) will become an even stronger area of focus in 2014.

• Of the markets surveyed, New Zealand small businesses were least likely to have increased staff numbers in 2013 (10 per cent of respondents). They are also the least likely to expect to add staff in 2014 (13 per cent of respondents). However, figures indicate that the sector should be a source of some employment growth in 2014.

• Of those New Zealand small businesses that sought external finance in 2014, access to finance was easier than expected (44 per cent of respondents’ experienced easy or very easy access to finance in 2013 compared to the 26 per cent of businesses that expected easy or very easy access to finance).

• Despite easier than expected access to finance, there was a slight decrease in the number of New Zealand small businesses that required external funds in 2013 compared to 2012. New Zealand businesses are significantly less likely than businesses from Asia to have required external funds. This possibly indicates that New Zealand small businesses are underleveraging, which is impacting their ability to grow their business.

• New Zealand small businesses were most likely to cite business growth (37 per cent of respondents) and purchasing capital assets (28 per cent of respondents) as the reasons they sought external finance in 2013. The percentage of New Zealand businesses that stated business growth as a reason for seeking external finance is up significantly from 2012 (37 per cent in 2013 compared with 20 per cent in 2012). Reflecting this shift, seeking external funds for business survival became a significantly less important reason for seeking finance in 2013 than it was in 2012 (38 per cent of respondents sought finance for business survival in 2012 compared to 24 per cent in 2013).

• Banks remain by far the most popular source of external finance for New Zealand small businesses (71 per cent of respondents). New Zealand small businesses were significantly less likely than businesses in other markets surveyed to have sought finance from investors (6 per cent of respondents).

New Zealand businesses can do more to prepare themselves for future growth

• The survey indicates that New Zealand small businesses’ priorities are centred on customer retention (48 per cent of respondents) and new customer marketing (45 per cent of respondents). While this is positive, CPA Australia notes that New Zealand businesses are the least likely to focus on essential strategic issues such as improving business processes (23 per cent of respondents) and innovation (20 per cent of respondents).

• Business growth (46 per cent of respondents) is the most popular reason 37 per cent of New Zealand small businesses expect to seek external finance in 2014 – purchasing capital assets (31 per cent of respondents) was the second-most cited reason. New Zealand small businesses were the least likely of the markets surveyed to state business survival (14 per cent of respondents) as a reason they expect to seek finance in 2014.

• New Zealand small businesses were the second-most likely of the markets surveyed to expect to seek advice from an external accountant on their financing needs (30 per cent of respondents), however it is down from 33 per cent in 2012. New Zealand businesses were significantly more likely than other markets, not to expect to seek advice from anyone on their financing needs (20 per cent of respondents).

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