SME Index: One year on

Key findings

  • The past twelve months was full of extraordinary challenges for Australia’s small and medium enterprises (SMEs), who were forced to bring forward years of development, change the way they engaged with customers and transform staffing.
  • Many SMEs built up buffers to ensure they had capital available – cash or credit. The GetCapital Cash Balance Index confirms that many SMEs managed to save money in the second half of the year to cushion themselves against future impacts or investment and growth opportunities.
  • In the main, Government assistance landed when and where business needed.
  • Each sector has had a different journey and while some are on the path to recovery, others are still suffering.

We could all be forgiven for thinking that the fires and floods of 2020 would be the defining disaster of the year, but by mid-March COVID-19 was declared a global pandemic. The economic hit to businesses and households was swift and severe. The markets responded to the crisis with worldwide sell-offs; in Australia the ASX 200 plummeted by 9.7% and the All Ords lost $165 billion in a single day¹. As panic and confusion spread, Australia closed its borders to non-citizens and non-residents. Lockdowns, social distancing and restrictions on movement were introduced. So how have Australia’s small and medium enterprises (SMEs) fared throughout this extraordinary time? Despite initial fears of complete economic collapse, it’s been a year of swings and roundabouts. What has stood out is SMEs’ extraordinary resilience and tenacity in the face of these challenges.

[1] G Hutchens, S Chalmers, ‘ASX 200 posts biggest fall on record, Reserve Bank flags further measures amid coronavirus fears’, ABC News website, 16 March 2020.

SMEs rise to multiple challenges

The impact of government restrictions to stem the spread of the virus led to an almost overnight shift in the business models for many Australian SMEs. This was often without the support of a large workforce or complex infrastructure teams.
These are some of the main challenges faced by SMEs in the first half of 2020:
  • Redesigning business models: Forced to immediately move away from in-person business, SMEs had to quickly figure out how to provide their services online without a drop in quality. This created a lot of work and significant stress. On the positive side, this transformation pulled forward years of development as businesses embraced digital innovation and learned how to provide personalised services online.

  • Managing staff: On top of a shifting business model, many business had to rapidly transition to a work-from-home arrangement for staff. This added another layer of adaptation to busy teams and prompted a rapid upgrade in technology for those not already equipped for remote working.

  • Navigating difficult logistics: Many SMEs had to reconfigure their business space to accommodate for social distancing laws. They had to keep on top of frequent changes to these laws as outbreaks began and receded in each state, or risk fines for non-compliance. Businesses also moved to accepting card-only payments to minimise physical contact with customers.

An analysis of GetCapital’s SME data reveals two major findings during the second quarter of 2020. Firstly, and unsurprisingly, there was a heavy negative economic impact of government restrictions on SMEs around the country. Secondly, these negative impacts were not distributed equally among industries. Those that were slower (or found it more difficult) to change were impacted more harshly from top-to-bottom. Fitness and recreation, accommodation, manufacturing, wholesale and retail experienced the greatest falls in sales during this time ­­– over 40% on average. The common factor among these industries is that their business models rely on in-person interactions or recurring revenue. Government restrictions hit fitness and recreation, accommodation the hardest.

Maximum Fall in Average Weekly Sales

Falls in average sales by sector

Government intervention helped keep SMEs afloat

As businesses were forced to close their doors in early 2020, the Government’s JobKeeper scheme stepped in and ensured many SMEs remained afloat. For those not eligible for JobKeeper, a doubling of the JobSeeker payment helped them avoid hardship. It appears that JobKeeper was true to its name, with 44% of businesses stating the announcement of the scheme swayed their decision to keep staff on.² And along with increased JobSeeker payments, it ensured consumer spending didn’t slump dramatically. JobKeeper, alongside other government measures, was vital in helping SMEs successfully navigate the challenges of trading in a pandemic. The ability to hold on to key staff enabled them to transition to new ways of doing business. It also ensured sectors like accommodation and hospitality could reopen with an experienced team onboard once restrictions eased. Another positive outcome for the government was that on average, support payments were actually received by those businesses experiencing the largest drops in revenue.

SME Sales Index

JobKeeper recipients versus non-recipients report (July 2020)

SME Sales Index

Total fall for JobKeeper recipients vs non-recipients

In March 2020 the RBA cut interest rates twice, taking the cash rate target to a record low. Between this and the positive impact of government stimulus payments, there was cautious optimism among SMEs at the end of the first half of 2020. Business and consumer confidence were both on the rise. Many SMEs were actively building their cash balances by cutting down on spending or deferring payments. All the signs pointed to a country that was ready to start growing again.

Then, in July, an outbreak of COVID-19 in Melbourne led to Victoria’s second and longest lockdown. While the restrictions were extremely successful in halting the virus, they came at a significant economic cost for the state. Victorian-based businesses experienced an average 15% drop in sales during their second lockdown. This came after Victoria outperformed the rest of the country during the national lockdown earlier in the year. It dealt the state a harsh lesson that not acting quickly enough to stem an outbreak could have severe repercussions.

Melbourne’s second lockdown hurt Victoria greatly

Comparison of Victoria during its two major lockdowns (the national lockdown in March and the state specific lockdown later in the year)

Building a buffer despite the challenges

Despite a tumultuous start to 2020, the GetCapital Cash Balance Index confirms that many SMEs managed to save money in the second half of the year to cushion themselves against future impacts. Consistent growth in cash deposits in SME accounts helped to grow balances by an impressive 100% between January 2020 and August 2020. Year-end data released by the ABS confirmed that this trend continued until the end of 2020, with cumulative deposits for non-financial businesses totalling over $200 billion.³ This impressive savings result was due in part to lending institutions allowing businesses to defer loan payments during the initial lockdown, landlords deferring rent payments and a range of government emergency measures that put cash directly into the hands of small businesses.

Building a buffer

GetCapital Cash Balance Index Report (October 2020)

The recovery isn’t over yet – and for some it hasn’t even started

Remarkably, the economy managed to end 2020 flat, or nearly flat, year-on-year (down 1%). As a result, many SMEs began 2021 with a clean slate – and an updated business model.

The economy ended 2020 where it began

Performance of the Australian economy

However, there’s no doubt that there’s more pain ahead for others. Manufacturers are still impacted by hospitality venues and offices closing. International borders remain shut. Many Australians cancelled their travel at Christmas due to the Sydney northern beaches outbreak, and ongoing uncertainty with border closures continues to impact the accommodation and food sector. The fitness and recreation sector continues to struggle due to lockdowns and customer reluctance to return to enclosed spaces like gyms or indoor pools.

So where does that leave Australian businesses now? GetCapital data shows that even though 63% of SMEs maintained or improved their sales during 2020, this left 37%, or more than one in three SMEs, starting 2021 still trying to rebuild their business and recover from the financial setback.

[4] A Bridger, ‘Manufacturing jobs in Australia: long-term trends and the impact of COVID-19’, Manufacturers Monthly, 4 December 2020.

Better off or worse off?

% of SMEs that are better/worse off as a function of sales

Flat, but it is the journey that counts

While the SME Index ended where it started, many businesses are not in the same place or recovering at an equal pace. Our data points to a K-shaped recovery with some sectors well on the road to recovery, while others are lagging. For those better off, improved business processes introduced during the pandemic – be it resilience, digitisation or customer focus – should continue to benefit them going forward.

On the flipside, for those SMEs worse off, Government assistance may need to take on a more individualised approach. While many businesses will hopefully make it out the other side of the pandemic, there will undoubtedly be more casualties to come.

SMEs across Australia took extraordinary efforts to transform their business operations during unprecedented circumstances. While many businesses aren’t out of the woods yet, Australian business owners should acknowledge their resilience and persistence navigating extremely trying times in unchartered territory.

About the data

The data referenced in this report was calculated by taking a representative sample of businesses from around the country (varied by size, industry and location) and looking at their credit transactions across all account types (e.g. transactions, savings and credit cards). The index has been baselined to the start of the crisis and uses six months of average sales as the denominator.

Bank connect

GetCapital uses Bank Connect, a technology that leverages transaction bank data to facilitate faster credit decisions and make business finance simpler and frictionless for our partners and customers. Bank Connect allows bank statement data to be retrieved in encrypted form, adhering to the highest levels of data protection and security.

The report has been prepared for information purposes only without taking account of the objectives, financial situation or needs of any individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. All material presented in this report, unless specifically indicated otherwise, is under copyright to GetCapital. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of GetCapital.