Click on the image to see the CoreData COVID-19 Pulse Check Dashboard

The COVID-19 pandemic has hit small businesses hard, with less than a third (31.2 per cent) of the small businesses CoreData has spoken to as part of its research on the impact of COVID-19 saying they are trading as normal.

Most of the nearly 100 businesses we’ve heard from are sole traders and micro businesses, employing up to four staff. With government-imposed restrictions and closures, a ‘new normal’ is to be expected. However, these businesses have  shared with us the far-reaching impacts of COVID-19, including plunging revenue, cashflow issues and business owners going without salary to keep their businesses operating.

Revenue declines, threats to solvency driving poor outlook

Around eight in 10 of the almost 100 small businesses we spoke to say they are experiencing declining revenue, with 43.5 per cent saying the decline is significant. 

While most have some form of financial safety net, most often in the form of funds in the bank (55.2 per cent) or saleable assets (31.3 per cent), a considerable number are facing very real threats to their solvency. Almost half (49.0 per cent) are already experiencing cashflow issues, while 23.0 per cent are currently unable to pay their bills and meet overheads, and almost one in six (16.3 per cent) are unable to continue trading. 

Looking forward, an additional 20.4 per cent anticipate being hit with cashflow issues within the next one to three months, and a similar number expect they will not be able to meet their overheads (21.4 per cent). All told, 45.9 per cent already have, or believe they will face, the inability to continue trading within the next 12 months.

Click on the image to enlarge

As a result, a poor economic outlook is pervasive among these smaller-scale businesses. More than four in five (81.4 per cent) expect economic growth to slow, with almost the same number (77.7 per cent) anticipating business conditions will worsen during the next quarter. 

The overwhelming majority (80.8 per cent) anticipate a recession within the next three months. When we compare their outlook to that of the average Australian, these businesses are also notably more pessimistic. 

Households of small business owners are feeling the pinch

Just under nine in 10 of those who have shared their experiences are business owners (87.8 per cent). We heard that two in five (38.2 per cent) business owners were either foregoing their salary or taking a pay cut to keep their business trading. 

It’s not just businesses that are suffering. More than three in five (62.2 per cent) are expecting their household financial position to worsen over the next 12 months. This is despite the fiscal stimulus measures applying to SMEs, with which less than two in five (39.4 per cent) were satisfied. Potentially this reflects the fact that only one in five (21.4 per cent) say they fully understand these measures. 

Interestingly, businesses we heard from were more positive about the impact of the $189 billion fiscal stimulus package on Australians, albeit far less so than Australians overall (63.3 per cent vs. 80.7 per cent respectively believing it would be at least somewhat helpful). 

Click on the infographic to enlarge

Smaller businesses are attempting to adapt and survive

More than four in five (84.2 per cent) businesses we heard from indicated they were making changes to keep their business trading. Owners taking salary hits was second only to having staff working from home (48.7 per cent), while almost a third (32.9 per cent) had made adjustments to the goods and services they offered. 

Notably however, less one in five (19.7 per cent) were leveraging online trading and an equal number (18.4 per cent) had reduced staff numbers or workforce hours. Whether access to JobKeeper payments will see smaller businesses seek to reinstate workers and increase hours is yet to be seen. Better understanding of the options being made available to them, and their eligibility will be imperative to minimise impact not only on small business owners, but their employees.

In terms of diversifying revenue streams, the situation is perhaps more concerning, with more than a quarter having no plans to do so (27.6 per cent) and a further 11.8 per cent unsure. 

Of those who are attempting to diversify, online trading is not the most common strategy (17.1 per cent), although 23.7 per cent indicate they are increasing their online offering. Rather, these businesses are more commonly offering new products and services (34.2 per cent), changing their delivery methods (30.3 per cent) and targeting new types of customers/geographies (28.9 per cent). 

Can they survive?

The success of the above strategies will necessarily vary, depending on the prior experience and existing internal capabilities of each business. For larger businesses, market segmentation, message testing, market and competitor intelligence gathering are among the raft of services CoreData provides to support business growth and diversification strategies. For a struggling sole trader already sacrificing their salary to keep their business afloat, what are the options to help ensure any measurable success, especially given the likely limited, or non-existent budget available?

These preliminary insights indicate that businesses are not struggling because they are ill-prepared. Most have financial safety nets in one form or another, most are adapting and attempting to diversify in the face of a truly unprecedented trading environment. The question is, how successful will they be, and what further supports need to be considered, given the vital role of small businesses in the Australian economy and to the income of so many Australian households?