Jane Lindhe Reporter

Jane is a retail and small business writer with a special interest in emerging companies and entrepreneurs. She covered the financial services industry before moving into general business journalism and has written for The Age and The Australian Financial Review.

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Caution favoured over innovation in 2013

Published 20 December 2012 05:23, Updated 21 December 2012 05:36

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Caution favoured over innovation in 2013

Business owners are tipped to focus on paying down their debts, saving for higher tax costs and use their cash to keep their businesses going. Photo: Rob Homer

Small businesses that have grown accustomed to a cautious approach over the past two years are unlikely to undertake major changes or investments in 2013, with most predicting revenue growth to halve on previous years.

Chairman of accountancy group William Buck, Nick Hatzistergos, has joined a growing number of analysts and commentators who say that in the absence of a major catalyst for change, most small and medium-sized enterprises are more likely to “sit tight” in 2013 rather than invest in their businesses.

“There is no doubt that 2012 saw a decline in the economy’s key drivers such as property development, construction, manufacturing and retail,” Hatzistergos says. “With mining also cooling off due to the slow down of Chinese demand, we are not expecting to see significant growth across the business sector in the new year.

Instead Hatzistergos says business owners will focus on paying down their debts, saving for higher tax costs and use their cash to keep their businesses going. Turnover, he predicts will more than halve from 8 per cent to 10 per cent in previous years to less than 4 per cent in 2013.

Hatzistergos is critical of too much caution, saying that while it is a sensible way to operate during a crisis, it is “not the way to build a country or create employment and prosperity in the long term”.

But “safety mode” is unlikely to last forever, according to Hatzistergos. “Something always comes along to kick off a period of optimism,” he says.

One trigger for stimulus, Hatzistergos says, is the prediction that Chinese and other sovereign funds are interested in investing some of their surplus in safe economies such as Australia. “That could create some stimulus for additional borrowing,” he says.

The banks continue to hold the power when it comes to businesses growth plans. While the Reserve Bank of Australia has reduced the official cash rates, that has benefited home owners rather than SMEs, Hatzistergos says.

“We have four of the 15 largest banks in the world based in an economy of 23 million people, which gives them an extraordinarily dominant influence on the Australian finance sector,” he says. “Most businesses couldn’t access growth capital even if they wanted too.”