PowerPoint Presentation

The Voice of Australian Business 2015

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The Voice of Australian Business 2015

Mark Chapman Executive OfficerBentleys Australia and New Zealand

Bentleys has a long history of providing accounting services to small and medium enterprises (SMEs) across AustraliaSeeking to position the firm as a thought leader for the SME market, Bentleys commissioned The Voice in 2014, a long-term research project to follow and explore the mindset, needs, expectations, and concerns of its client baseNow on third survey wave 32

AIMOutline the main findings from the latest Voice survey.Cover some key findings from the previous Voice surveys and why they are still relevantGive you an insight in to the type of data we hold and how it can be used and how Bentleys might assist your clients .

Questions at the end

Talk through points

So why do we do this next slide3

Why does Bentleys conduct The Voice survey?There are 2,100,162 businesses in AustraliaOf which 2,045,333 are SMEs They produce over 90% of GDPThey provide over 70% of the workforceSource Australian Bureau of Statistics 2014

We need to understand the challenges and opportunities faced by SMEs

Why do we do it we need to know our clients and the SME environment so we can understandChallengesHurdlesStress pointsSuccesses and opportunities

Statistics and sources vary, but it is true to say that the majority of our clients and the business environment are SMEs

Next slide - The Voice wave 1 details

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The Voice - wave 1April 2014Agri-businessHealth and Aged CareGovernmentEducation (Private Schools and TertiaryProfessional Services3280 SMEs surveyed

The potential and mood of Agriculture The Dining BoomBusiness ConfidenceWidespread misconceptions about Foreign InvestmentFears and opportunities about technologyStrong feelings on IR

Working with Empirica Research, the first wave of The Voice in early 2014 surveyed 3,250 SMEs Australia-wide, providing insight into these industries main client base The survey covered these key areas what our clients indicted were concerns

This gave us a base to compare and to gauge further surveysAs you will see we still use the data but also an very good indication of what to ask in respect of what areas needed further questioning

Next slide The Voice Wave 25

The Voice - wave 2 November 2014All Industry SectorsButMetro v Non MetroMicro Business and how it differs from Small and Medium350 SMEs surveyedConsistency of data

Business Confidence has it changed?Attitudes and understanding of Tax and the GSTThe slow uptake of new TechnologyWhat SMEs know about Foreign InvestmentThe emergence of the Micro BusinessThe key differences and challenges of Metro and Non-Metro

The second wave of The Voice, in late 2014, surveyed 350 micro, small, and medium enterprises in all industry sectors across Australia. The survey retained lines of questioning around confidence and employment, technology uptake, and foreign investment, and added an extensive section on tax, including GST

Why because wave 1 indicated concerns in these area and client feedback also helped design questions

Smaller survey we wanted to see if data was consistent

Point out key aspects

Next slide The Voice 36

The Voice wave 3, August 2015

400 respondents - 53% of business surveyed were located in a capital city or surrounding suburbs Metropolitan47% were located outside of state capitals Non MetropolitanMain respondents were professional, technical, retail, agri-business, education, manufacturing, health and financial.

Talk thorugh

Roughly in line with population credibilityOnce again smaller samples workedSize Marco 1-4Small 5-19Medium 20-250

Next slide EMPIRICA7

The Voice 2015 (Wave 3)Report on Wave 3 of Bentleys The VoiceAugust 2015PREPARED FOR:

we have a full pack of the survey which is available Too much to show hereSo only a quick look at some of the key data and some examples of the type of data we have

Bentleys are willing to present relevant details to your staffor business partners or Client groups

What did we ask in Wave 3?

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What did Bentleys ask?Business Confidence to what extent do you feel concerned about business prospects over the next 12 months?The Small Business Environment the challenges and opportunities for Australian SMEs and how has the 2015 budget impacted your business?Access to funding the types, the challenges and the impacts?

Succession Planning thinking about the future of your business, do you have a strategy for exiting your business and do you know the value of your business?Superannuation do you have a SMSF, how is it administered, what will be your principal source of retirement income and what is your strategy to fund your retirement?

Bus Confidence allows us to measure the changes over time and look for new trends The Small business environment much talk of the budget helping but has it? And what is it like to run a SME what are the key challengesAccess to funding - how difficult is it to access funding and what types are sought what are the emerging trends?Succession Planning -Past surveys hinted at a lack of understanding/urgency in this area we wanted to know who does and does not have a strategyAnd if they have a strategyRelated to retirement SMSF how many SMES have them, what strategies do they have and is retirement covered.

Overall aim is also to identify opportunities where can Bentleys and service providers assist?

Next slide What were key Messages9

What are the key messages from the SMEs?There is a call for broader Tax reform - the tax system is regarded as too complex and there are perceptions of excessive red tape but lack of awareness of the intent to change.The jury is still out on the benefits of the Small Business Package.Those SMEs feeling confident are looking to invest in technology & Small Business is showing some encouraging signs.

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What are the key messages from the SMEs?Very few businesses have a succession plan or have not considered one necessary.SMEs are generally challenged when looking for funding both in terms of success and knowledge of options.SMSF SMEs think that they are too complicated and most are content with their current super arrangements

Talk through

Seeing links and trends over time

Next slide lets look at Business Confidence

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Business ConfidenceExpectations are more positive -particularly for larger and metropolitan businessOver 50% are extremely or somewhat confidentWhat this confidence is leading to in terms of growth, investment and innovation - i.e. what are the next step for our clients?

Very interesting tempting to be misled as I will show you

Talk through

But where is the confidence (and why) and what is it leading to

This is the key difference in The Voice the depth and ability to drill down

Next slide - chart.12

Business ConfidenceConfidence in Business prospects in the next 12 months

Talk through totalShow extremely and somewhat

But 17% worried in some form opportunities

Explain the slope between Micro, Small and Medium no surprises so relevant when it differs

Explain metro and no metro

See it better on this slide Next slide13

Greater expectations for larger and metropolitan businesses

This once again demonstrates that Micro and Non Metro tend to have more challenges

But also highlight that we have data on most findings by Business size and Business location.

But is it when the data is compared over time that some les obvious but important aspects emerge

Next slide wave 1-314

Business ConfidenceComparison of recent data

Explain changes over time

Remind dates 1.April 20142. Nov 20143 Aug 2015

Lower end has not changed point out Extremely and Somewhat

So where is this confidence leading? Next slide - technology

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Evidence suggests that SMEs are finally embracing technology

But where is this confidence being directed

Lets compare this with wave 1 in April 2014

Concerned that only 14% - this was low with Cloud etc

Other data referred to confusion, lack of knowledge, security.

Compare this to the latest figures next slide16

Technology is the primary target for Investment

We can see the three key areasGrowthInvestmentInnovation

Most have remained the same

But a big change has been Investment in Technology 28 % - this has doubled in 18 months

Next slide - data by size and location17

Data available by business size and location

Some other key areas can be seen here Growth,Investment Innovation

When we look at the data available by size and location

The slope is challenged here ie Small business is expanding quicker that Medium in these areas flexibility to exploit.

Trends are useful for Service providers

Next slide what does this mean?18

So what does this mean for professional services?Overall more than half of SMEs are somewhat or extremely confident.Overall confidence has been relatively consistentHowever the extremely confident bracket has increased from 16% to 25%Only 13% of SMEs have indicated no plans to change (down from 30% in The Voice wave 1) they are likely to be Micro businesses in non metro areas.Growth is the most common expectation particularly for Small businessesThe most noticeable change over time is investment in technology.

The key aspect is what does all this data mean

Talk through points

Expansion yes Talk through 13%

But key aspect is the choice to invest in technologyBut 13% -no plans to change opportunity

Next slide challenges SMEs face/19

There are challenges to being an SME in Australia

Bentleys were keen to look at the effect of the budget

but we also wanted to know about the SME environment as a whole

And it is not easy as this next slide shows20

Running an SME is..

34 % find it somewhat hard or very hard -

compared to 30% who find it easy or somewhat easy

And a third do not know

And this can be shown as Metro and No Metro and Micro through to Medium results as expected

So what are these challenges that make it hard?21

Challenges on the day to day running of an SME

Overall, the three biggest challenges to running an SME in 2015 are the costs of taxes and insurances, the complexity of the tax system, nd excessive red tape

This mirrors the findings of The Voice wave 2 and how the SMEs found the tax system a real issue

Talk through:Red TapeFinding Quality advice22

Some interesting quotes

Government red tape and complianceSA, metro, small

Cost of statutory compliance e.g., audit fees, accounting fees.NSW, non-metro, small

Red tape bureaucracy and regulations made by people who have no experience in the challenge facing small business.Victoria, metro, small

Knowing I am going to have to work until I am 70 is not much funQLD, non-metro, micro

The complicated tax system and changes happening all the time.Victoria, non-metro, mediumJust the slow rural economy so nothing much is happening generally.NSW, non-metro, micro

General consumer confidenceNSW, non-metro, micro

The slow economy is of no benefit to small businesses.QLD, non-metro, micro

Low value of Australian dollar.NSW, metro, medium

Having a Federal Government that seems to be stuck in the 1950s and seems to be happy to support large companies instead of small business. In my area there are 22 vacant shops and it is growing NSW, metro, small

Knowing where to find out about whatever government regulations apply to whatever activity you wish to undertake.QLD, non-metro, microHigh cost of machinery, farm products for sheep farming & fuel costs.Victoria, non-metro, small

Fuel & insurance costs.WA, metro micro

Price of water and electricity for agriculture farmers - it is crippling the industry. Cost of private medical cover.QLD, non-metro, micro

Everyday things like paying high rates for gas and electricity.Victoria, metro, micro

SA, metro, small

Australia Post excessively high domestic rates are the main obstacle our small business faces. The fact that International parcels can be delivered within Australia at far cheaper prices than parcels being posted within Australia make it extremely difficult to compete price-wise with international sellers. QLD, metro, microFinding good, honest employees!!NSW, metro, micro

Lack of reliable workers.NSW, non-metro, micro

The quality of staff being churned out of poor educational facilities is nothing short of abhorrent.NSW, non-metro, micro

Staff retention and training.NSW, non-metro, medium

Difficult to find staff that want to do the work and stick at it longer then a few weeks.NSW, non-metro, small

Overall support. High costs of maintaining small business.QLD, non-metro, micro

Keeping updated with rules and regulations for superannuationNSW, non-metro, microCompeting with online competitors offering similar products and services.SA, metro, small

Not many jobs so a lot of people seem to be starting up their own business.Victoria, non-metro, micro

Not enough work to go around and too many larger companies taking all the work.SA, metro, micro

Too many people buy stuff from overseas.VIC, metro, medium

The quotes add a personal dimension to the survey

They help us look at possible questions for the next surveyKey pointsStaff difficulties

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There are challenges to being an SME in Australia -video

Lets summarise with a short video clip

No truth in the rumour that they are auditioning to be the next James Bond.24

So has the 2015 Budget helped the SME? Has the Small Business Package been effective?

So what about the Budget what did the SMEs really think of it

We asked what the impact on business was results surprisingNext slide.

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The impact on my business is..

Larger and metropolitan businesses have generally had a more positive response to the Budget than have smaller and non-metropolitan businesses. The immediate asset write-off and the reduction of the company tax rate have been the best received individual measures of the Budget,

The Restart subsidy was rated as least beneficial overall. Just under half of all SMEs have or will make use of the immediate asset write-off for assets worth less than $20,000 in both cases the most common intention is to use it on computer equipment, or tools or machinery.

So lets look at this in detail26

But the immediate asset write-off has proved popular

Looking at the immediate Asset write off

Just under half of all SMEs have or will make use of the immediate asset write-off for assets worth less than $20,000

in both cases the most common intention is to use it on computer equipment, or tools or machinery.

But the key part of this is that 51% have not taken advantage With 30% saying they will not. So why is it a finding issues look at that later. The main message was Tax Reform

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However the main message was a call for broader tax reform among SMEs

Awareness of the Governments intentions to reform the tax system is not high only 62% of SMEs were aware of this; lower in non-metropolitan areas.

All SMEs were most enthusiastic about reform in the shape of further business tax cuts and cuts to red tape, as well as payroll tax relief, more tax incentives to invest in plant or equipment, and cuts to stamp duty.Overall, there is less enthusiasm for more free trade agreements and research and development grants, except among medium organisations. Poss lack of understandingThere is relatively little enthusiasm for cuts to penalty rates and the minimum wage overall. In their own words, the desired outcomes of reform for SMEs can be summed up in two words:

simplicity, and fairness.

The Voice 2 had hinted at the difficulties of succession planning next slide28

Succession PlanningWe can quarry rock, we can crush rock, we can make concrete and we can build runways but the biggest challenge we face in our business is Succession Planning.

Denis Wagner - 17th Sept 2015(One of four Wagner brothers running a family business in Toowoomba QLD)

Explain this quote

Why did we ask about it

A concernCome up in previous surveys as a challenge

So wanted to know exactly how much of a challenge29

Succession Planning -video

Some of Bentleys thoughts on Succession Planning

But what do actually do about SP? Next slide30

What will your business do without you?48% of SMEs say they have an idea of a Succession Plan but only 19% have a written formal plan.25% of those leaving their business within 5 years have simply never considered it.My business isn't complex enough to warrant a Succession Plan.For those who do have a plan the majority plan to handover to new ownersAn opportunity for the trusted advisor.

Here are some interesting facts that highlight the shortfall

But most of all an opportunity for professional services The McDonalds effect value add

Tell story of asking Denis Wagner his reply was what can you do to help me?

How close is the need for a plan?31

Likely time until exit from business?

For 40% of SMEs retirement is within 4 yearsFor 18% it is within 2 years

Consistent across most business areas

So it is a real issues as baby boomers and Gen X reach retirement

So how many have a plan for exiting next slide32

Exit strategies and succession planning

The presence of a succession plan is linked to expectations of continuation with the business

It is highly likely that those without a plan of any kind believe that their business is not complex enough to require such a thing, or have never even thought about organising one. Formal succession planning is also more likely to be occurring in larger enterprises, whose size may better facilitate forward planning of this nature. Point out Micro v Medium - differences

Overall 1 in 3 business do not have a plan opportunity - value add

But why dont they have a plan?

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Reasons for absence of succession planning

It is highly likely that those without a plan of any kind believe that their business is not complex enough to require such a thing, or have never even thought about organising one.

Interesting the thoughts on cost and prof advice

And not knowing who to ask not seen as something Prof Services offer? - McDonalds

So we asked what is happening to the business? Next slide34

Plans for exiting the business

For the majority of SME decision-makers who have given at least some thought to their exit from the business, the intention is to keep the business going after they leave.

The most common plan is to sell the business to new owners, or to pass it on to family or friends. Only around one in ten explicitly plan for the business to end with them

Now linked to this is how are you going to fund retirement on exit?Next slide 35

Do you have a strategy in place to fund retirement?

Explain slide primary all sourcesSME decision-makers intend a high reliance on their superannuation as a source of retirement income; as can be seen by this slideOnly 57% of decision-makers in SMEs have a retirement strategy in place Most will be relying on a combination of superannuation and cash savings to fund their retirement, with 31% expecting to be primarily reliant on their super. The size of business in which they work is associated with variations in expectations for retirement funding. those in micro businesses are more likely to be anticipating working for the rest of their life and relying on their aged pension. Those in small and medium businesses appear to be approaching their retirement Metro/Medium better informedwith a greater diversity of funding sources than micro business decision-makers.

Link to SMSF lets look at Superannuation particularly SMSF and life beyond business36

SMSFs

VideoThen some facts37

SMSF -video

SMSFs - a risk for SMEs?One third of SMEs have an SMSFBut only 16% completely agree that they are aware of all the rules and regulations that apply to SMSFs51% administer the SMSF themselves71% agree that they know exactly what their SMSF is investing in.69 % are confident that their SMSF is working well for them.Those that do not have an SMSF tend to dismiss them as they are satisfied with current Super arrangementsIt's a high risk form of gambling and I'm not interested.QLD, metro, small

a third have taken additional responsibility for their superannuation by moving to a self-managed superannuation fund (an SMSF), which they mostly administer themselves. Overall, these SME decision-makers appear to be enjoying the control that comes with managing their own investments in a way that suits them, and are confident that they have made the right decision.

Those without an SMSF are also happy with the decision they have made 35% are happy with their current superannuation arrangements.

If current satisfaction is not their primary motivator for not having an SMSF, perceptions of these types of funds as requiring a high super balance to begin with, being complicated, and being risky, are all notable barriers to their take-up

Reasons for not having one? Next slide39

Reasons for not having an SMSF

Talk through

It is most common for those who do not have an SMSF to dismiss the idea because of satisfaction with their current superannuation arrangements.

Apart from this inertia, reasons for maintaining traditional superannuation arrangements are likely to relate to lack of knowledge of the workings of an SMSF, and a resistance to entering into a new arrangement perceived as being complex and risky. -

Opportunities

Attitudes?

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Attitudes towards SMSFs

Here are some key facts about SMSFs

Those with a SMSF appear to be enjoying a sense of control over their super (71% agree that they know exactly what their SMSF is investing in), and are happy with the results of having an SMSF (69% are confident that their SMSF is working well for them). 40 % administer it with the help of a financial planner or advisor and 9 % have someone else do it completely

Lets move to funding because we saw earlier 30% did not want to use the Immediate write off advIs funding the issue next slide

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The pursuit of funding

The landscape is changing but does the SME know about it>?42

The pursuit of funding - video

Lets look at some facts about funding43

The pursuit of fundingWhen needed it has generally been successful. Of those that sought funding 66% were successfulBut interest rates, knowledge of options and processes are challenges. The most common types of funding over the last 2 years have been:Bank LoansPersonal SavingsCredit Cards

Forty-four per cent of SMEs reported that it had not been necessary to seek funding for their business over the last 2 years; Of hose that had, a third were not able to raise the funds they required. It was more common for metropolitan businesses to have needed to raise funding and have been successful in doing so;

Non-metropolitan businesses were more likely not to have found it necessary but those that did found it more difficult. It was also more likely for larger businesses to have found pursuit of funding necessary, and to have been successful in obtaining it.

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Types of funding pursued in last 2 years

Talk throughLook at top three

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Challenges experienced when trying to raise funds

Among those who tried to raise funding (whether successful or not), the most common challenges were high interest rates, lack of knowledge of available grants, confusion about the options available, difficulty with application processes, and lack of relationships with lenders all of these were experienced at similar rates regardless of whether or not funding was successfully obtained. Those who were successful were significantly more likely to have had a completely challenge free process than those who were unsuccessful.

The most common sources of funding pursued and used by all SMEs are bank loans, personal savings, and credit cards. Small and medium businesses are more likely than micro businesses to make use of investments from other businesses and partners.

So what happens when funding is restricted next slide

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Impacts of restrictions on lending and access to funding

From this you can see that lack of funding understandably

has a detrimental impact on SMEs

So what does all this mean next slide47

What does this mean for Bentleys and other service providers?SMEs want a broader tax reform but admit to not understanding tax it is too complicated and not aware of plans for reformPerceptions of excessive Red Tape.Confidence has increased since 2015 budget

SMEs are looking to invest in technology digital transformation?SMEs need advice on innovating and upgrading technology to better serve and support customers.SMEs need help in succession planning 52% do not have a planLack of awareness of options and lack of funding is preventing expansion and investment.

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