Challenges and strengths for Australian SMEs
RSM survey reveals challenges and strengths for Australian SMEs
There is strong evidence that small business owners who prepare a business plan will grow their business, according to RSM Australia’s thinkBIG 2017 findings.
Despite this, many SME owners still don’t understand the relationship between developing a business plan and achieving growth. In previous years, thinkBIG has demonstrated that creating a strong business plan can be the difference between achieving growth and remaining stagnant and the 2017 survey results are no different.
Interestingly, 2017 has seen a slight resurgence in the number of businesses creating a regular business plan. In 2017, the number of respondents who created a regular business plan was 69 per cent, an increase of four per cent compared with the response in 2016, although this is still well down from a high of 76 per cent in 2012.
thinkBIG 2017 found that almost one-third (31 per cent) of respondents still don’t have a business plan, which is concerning given there is such strong evidence that businesses with plans outperform those without plans.
In 2017, of those companies that completed a business plan, 53 per cent said they achieved growth and just 15 per cent experienced a decline in revenue. Companies that did not complete a business plan were less successful, with only 38 per cent reporting growth and 18 per cent reporting a decline in revenue.
Based on the evidence of previous years’ results, the absence of a good business plan may reduce the ability of businesses to bring growth to fruition and suggests that many SME owners still don’t understand the relationship between developing a plan and achieving growth. Almost two-thirds (61 per cent) of SME owners who did not complete a business plan said they still anticipated achieving growth in the coming year. It is dangerous for small business owners to operate according to an informal or unwritten plan as it relies on that one person being present and capable of working in the business well into the future, making long-term growth and sustainability difficult. A formal, written plan ensures everyone in the business understands its goals and milestones, making employees more likely to be fully engaged and lessen the workload of the business’s principals.
When it comes to exit planning, a critical aspect given that every business owner will exit the business eventually, it’s surprising that just 36 per cent of respondents have an exit plan in place, compared with 46 per cent in 2016.
When it’s time to exit, business owners need to understand what their business is actually worth, as opposed to what they think it should be worth. This year’s thinkBIG survey found that nearly three-quarters (74 per cent) of business owners believe their business has increased in value this year, but just 29 per cent of respondents actually did a recent business valuation. In the absence of hard data from a valuation, it is hoped that the expectation of an increase in value is not misplaced optimism.
Whether owners are looking to exit soon or not, it can be worth doing a valuation just to see where the business sits in the marketplace. If the timing is right, a good valuation may encourage some owners speed up their retirement plans or, if the reverse is true, then the business owners can revise their exit plans as appropriate. The valuation can also make it easier to lock down business finance at favourable rates, saving the business money. An exit plan usually takes a couple of years to properly execute. Owners should ensure they set about drawing up and then executing the plan over a medium term period. It is not a process that can begin two or three months out from retirement.
Of those SME owners who have an exit plan, 17 per cent plan to sell the business to employees or existing shareholders, while eight per cent will close the business when they exit. When it comes to retiring, two-thirds of business owners (66 per cent) don’t intend to fund their retirement primarily from the sale of the business. This reflects last year’s results and a seemingly-increasing trend towards SME owners relying on other investments and income sources.
thinkBIG has measured the pulse of the Australian SME sector since 2005. It benchmarks business growth, business planning, exit planning, superannuation and the impact and uptake of technology. 216 business owners participated in the 2017 study, providing insights into how Australian SMEs feel about their business and what keeps them awake at night.
Peter Saccasan is a Partner of RSM Australia Partners and a Director of RSM Australia Pty Ltd.
Having grown into one of Australia’s leading professional services firms over the last ninety five years, RSM Australia is committed to enabling clients through a greater understanding of what matters most to their business. In addition to local knowledge provided by their advisers in 30 offices across Australia, RSM Australia draws on their international reach and scale to ensure clients stay at the forefront of the world’s best practices, technology and innovation within a rapidly changing global economy.