The newly released August SME Sentiment Tracker shows that small and medium businesses are increasingly optimistic about the future, but job vacancies remain their biggest hurdle to growth.

The latest SME Sentiment Tracker has found that after a slight dip in August, small and medium business revenue is currently steady with over two-thirds (68 per cent) reporting turnover comparable or exceeding pre-pandemic levels. In fact, 17 per cent of SMEs are generating higher revenues than before the pandemic.

The online survey of around 400 financial decision makers in small and medium businesses by market researcher ACA Research in partnership with Ovation also found 52 per cent of SMEs reported a profit in August. This continues an upward trend that commenced early this year.

“The availability of staff and associated wage growth is the biggest challenge now,” says James Organ, managing director of ACA Research and Fifth Quadrant. “But I suspect a spending slowdown in Q4 could signal a difficult end to the year.”

That said, the ongoing upward trend in wage growth has spiked significantly in August, indicating small and medium businesses are lifting remuneration and benefits to attract and retain staff in a highly competitive market. This correlates with less concern over staff shortages being reported – down from 63 per cent in July to 52 per cent in August.

Job vacancies are still difficult to fill

However, the number of SMEs with job vacancies remains very high. Almost half of respondents were finding it challenging to fill positions, citing a scarcity in applications (75 per cent), a lack of qualified candidates (58 per cent) and competition for talent (34 per cent) as their highest barriers. Over three quarters are finding it more difficult to fill roles since before the pandemic.

Less concerning for small and medium business were the lack of backpackers/migrant workers (14 per cent, up from 11 per cent in July) and wage demands being too high (24 per cent – down from 39 per cent in July).

Overall, only 11 per cent of respondents thought it was “not difficult” to fill job vacancies in August.

Despite staffing difficulties, there’s been an increase in small and medium businesses reporting an expected growth over the next 12 months. Last month only 32 per cent reported a positive expectation, this month that’s risen to 43 per cent.

Also promising was the decrease in concerns around supply chain issues and energy and fuel costs, which have both come off the extreme highs reported in July.

Low confidence in Federal Government

Small and medium businesses continue to lack confidence in the ability of the Federal Government to deliver effective policies to support their needs.

This was particularly strong in companies with over 20 employees (around 50 per cent) versus those with less than 20 per cent (around 28 per cent). This difference in confidence is to be expected, says Organ. “Generally, the smaller businesses have more flexible business models and hence can adjust quickly when things are tough.

“The larger SMEs tend to be more impacted by the lack of available skills, supply chain issues, energy/field prices etc and hence it makes it more difficult to navigate through difficult economic times.”

Queensland (80 per cent) and South Australia/Northern Territory  (90 per cent) showed the least confidence in the new Federal Government; New South Wales (58 per cent) were more favourable.

The construction industry rallied the most for the the new Government – in July only 11 per cent indicated confidence, by August that had risen to 44 per cent. Organ says this positivity is likely due to the impact of rising interest rates.

“Currently, consumers are still spending, but… I don’t think we have felt the full impact just yet, so I think the construction sentiment may dip again quickly,” he says. “Of course, interest rate rises often mean more renovations are conducted and hence this is good for tradies. Also, if the cost of building materials reduces due to less supply chain issues, we may also see an uplift in demand.”

Hospitality, retail, distribution and services were all trending down since July.

Further resilience needed going forward

Overall, Organ notes that while small and medium businesses are resilient, they might be in for a tough time in the next quarter.

“It will be challenging moving forward as consumers tighten their belts to accommodate higher interest rates,” he notes. “I think this will really start to bite in the last quarter of 2022 and hence could really impact the Christmas period and hence Retailers and Hospitality may suffer again.

“As we move in to 2023, I suspect the issues around inflation, supply chain and lack of staff will begin to subside and hence cost pressures should ease a little.”

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