SMEs gearing up for silly season

The “Prospa SME Insight Report”, released today, shows that half of SMEs (51%) surveyed say the summer season is important to their business, with many anticipating a bumper holiday period.

After operating in a recessionary environment for the last couple of years, the summer season brings with it a return of optimism. Of those who say summer is important, four in ten SMEs (43%) are expecting this upcoming season to be better than the last.

All SMEs have some concern over generating sufficient customer demand over summer (17%), for those who view the season as important, it is more about having enough staff to meet expected demand (36%).

With an anticipated busy period, half of SMEs who view summer as important to their business feel pressure to offer sales or discounted pricing to be competitive (52%). However, some are concerned about having enough customer demand at all, with one quarter (25%) saying so.

But despite a tough few years, SMEs are optimistic about the future, with over half expecting market conditions to improve in New Zealand in the next 12 months (55%). Around half of SMEs expect next year’s profit to remain similar to the current year (48%), while one-third are anticipating an uplift (32%).

Adrienne Begbie, Managing Director, Prospa NZ says New Zealand simply wouldn’t have the buzzing communities it knows and loves if it weren’t for small businesses.

“Being a business owner in today’s climate is no easy feat. While many of us will be winding down for the year, many small to medium business owners will be amping up. It’s a timely reminder to support your local businesses who will be working through the Christmas and summer break,” Begbie said.

“It’s certainly comforting to see that small business owners are starting to feel more optimistic about the current health of their business, after what’s been a challenging few years. This resilience and perseverance is a display of hard work and dedication we Kiwis seem to inherit.”

Last year in the lead-up to the Christmas and New Year period, Prospa NZ saw a 22% month-on-month increase (November to December) in the number of customers taking out a new Line of Credit. In addition, there was a 15% increase in the value of the Line of Credit value (origination limits) to support changes the summer period has on businesses.

The road is bumpy, but there’s a light at the end of the tunnel

Six in ten SMEs (62%) are feeling positive about their business's current health. However, it’s no surprise they remain somewhat cautiously optimistic about their business over the next 12 months (56%), signalling continued uncertainty despite a more favourable outlook.

However, half of New Zealand small businesses only have one-quarter’s worth of expenses covered by cash reserves if required to keep their business running (51%), and only 17% of those say they have less than one month’s worth of cash reserves.

Begbie says SMEs that are struggling with cash flow and cash reserves should seek professional advice on how they can manage their finances effectively, so if they do run into any issues, they’re covered.

Challenges remain relatively on par compared to May 2024 - the Prospa SME Insight Report shows the top three challenges SMEs are experiencing are:

• Staffing/recruitment - 17% (compared to 16% in May 2024)
• Government taxes: - 16% (up 5% from May 2024)
• Inventory - 13% (compared to 16% in May 2024)

Across the board, many SMEs cite these challenges being a result of inflation, the increase in wages and supplies.

To address the market conditions, business owners are being proactive:

• Three in ten of SMEs say they will expand their market reach (28%)
• Around one quarter say they’ll change pricing (27%)
• Another quarter will invest more in marketing and promotion (25%)

Alternative lending growing in popularity

Historically, alternative lending was once seen as a last resort. However, small businesses are seeing the benefits of partnering with a nonbank.

Two-thirds of SMEs are aware of alternative financial institutions offering different ways of providing business lending (65%, compared to 64% in May 2024), and almost half of SMEs trust alternative financial institutions to deliver effective business lending options (45%).

This comes as the Commerce Commission continues its ongoing enquiry into New Zealand’s banking competition.

“It’s gratifying to see consumers and business owners adopt nonbanks as their first choice. The more people use nonbanks and alternative lenders, the better this is for banking competition in New Zealand,” said Begbie.