SMEs: Business’s “forgotten people”

There is really nothing small or medium about SMEs. They employ seven million Australians, contribute over 50 per cent to Australia’s GDP and are integral to both global supply chains and the local community. Yet they feel they do not have the same opportunities as other businesses when it comes to the ability to access financing and business management technology. These are major pain points for the sector.

Why? SMEs have often been in business for many years, and are profitable. Some are very profitable. They are growing but are not part of the growth-orientated tech ecosystem that benefits from venture capital. They exist all over the economy, in retail, manufacturing, distribution, professional services and not-for-profit sectors. They aren’t seen as ‘sexy’ – even though they are crucial to the creation of ‘sexy’ products and services.

So how do we go about removing these pain points?

Take accessing finance. SMEs don’t usually have deep pockets. SMEs owners tell me they feel the only way they can obtain investment capital is by offering up their family home as security, which makes most resilient person hesitant.

In today’s low-interest rate environment, debt is cheap but can be hard to access. If we are to turn around the slowdown in the domestic economy we have to make it easier for SMEs to access lines of credit for both investment and cash flow management purposes.

A recent study suggests that 53 percent of SMEs’ invoices are paid late, depriving the sector of AUD7 billion in capital each year. Although fintechs and peer to peer lending firms for business loans have cropped up to service this demand in the market, their loan rates are often higher than the market average. From a regulatory perspective, APRA could assist SMEs by continuing to encourage the entrance of fintechs and neobanks into the banking ecosystem under their new ADI licensing framework whilst providing clear frameworks for unsecured loan origination technology with an algorithmic approval process. Enhanced competition in the loan market with a streamlined approval process would go a long way in resolving the financial issues of SMEs.

SMEs also express frustration at their inability to streamline their back-office functions. They lack the size and money to outsource these operations, but often find that they’ve reached the limit of software designed to assist SMEs in this area. Common complaints include an inability to integrate different functions of the business (such as inventory management and invoicing), a tendency for the software to be wedded to legacy systems and difficulties dealing with a growth in locations, inventory size or transaction quantity. The end result of these needless complexities is a loss of time that would otherwise be spent by owners and employees to run and grow the business.

A key step to solving these problems is migrating to a cloud-based system. The cloud allows owners and employees to access and update data in real time from anywhere in the world. To not use it is to place yourself at a competitive disadvantage.

Many cloud-based systems offer the seamless integration and reconciliation of data – like between your bank and accounting software – providing huge time and cost savings. This data can also be utilised to create relevant benchmarks on how their business is performing against others in the industry. Traditionally SMEs have had little ability to create benchmarks, let alone benefit from the insights they provide.

The future of our economy will be underpinned by our ability to liberate SMEs from these concerns. All large stakeholders in the economy – banks, governments, start-ups and large corporates – should work to help the great and glorious middle. It will be to the benefit of us all.