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5 Positives and 3 Trends

5 Positives and 3 Trends

5 Positives for the Australian Economy, 3 Trends for the Sale of Small Business

Economic news has been largely doom and gloom over the past few years, but there are five reasons the Australian economy is moving toward happier days. SME profits are on the rise, unemployment figures are steady and consumer confidence is on the up, collectively spelling good times in the future for Australian businesses.

1. SME profits increasing

Australian SMEs are performing well with 54% posting profit increases in the six months to December. The findings released yesterday by the Entrepreneurs’ Organisation reflected overall positivity among Australian SMEs in terms of market sentiment and net profits. The survey indicated 82% of Australian EO members expected an increase in revenue growth in the next six months and 76% predicted an increase in net profits. The profitability of SMEs and the recent survey have helped boost consumer confidence.

2. Consumer confidence rising

The Westpac consumer confidence survey released yesterday showed the biggest jump in consumer confidence since September 2011. The February Westpac-Melbourne Institute consumer sentiment index shows confidence is up 7.7 points to a 108.3, its highest level in 26 months. The biggest boost came from people aged 18-24, whose sentiment increased 32% on the index and sales and clerical staff also increased by the same amount. A combination of things, the economic impact from the European crisis (particularly in Spain and Italy) is fading and consumers are hearing more positive stories about China and the US and so the negativity is being removed. The lower interest rates over the past year have also contributed to this confidence. The older demographics living in the suburbs with a mortgage have had a huge boost from the low interest rates, so their finances are looking better.

3. Sharemarket above 5,000

For the first time in three years, the sharemarket closed above 5,000 and continues to remain above the psychologically significant number. The market has been steadily moving toward the 5,000 mark for the past few months with the market generally performing well or remaining steady on a daily basis. The sharemarket is historically a leading indicator for the economy and the fact that it’s turned upward over the past year is a sign that the market is buying a better future performance.

4. Retail results improving

A little bit of welcome news goes a long way in the retail world, with JB Hi-Fi’s shares increasing in value by 13% earlier in the week after they posted an increase in net profits. The retailer’s profits increased by 3% to $82.1 million in the six months to December and since the start of the year their shares have increased by around 21%. Noni B posted a profit of $2.4 million dollars this time last year which inspired a 37% jump in their share price and despite dropping to a $1.9 million profit in the first half of this financial year, directors believe they will trade well in the second half of the year. High-end retailers have continued to perform well, with Burberry achieving a 15% jump in sales in the Asia-Pacific region for the December quarter and Australian brand Oroton continuing to do well. All these indicators are consistent with a turn for the better for the Australian economy, the rough patch may continue over the next six months because it can take a while for spending to pick up, but by the year’s end it is forecast to be positive.

5. Unemployment rate steady

Australian unemployment figures have remained steady at 5.4% in January, according to the Australian Bureau of Statistics. Unemployment rates have been recorded since 1978 and the average rate has been 6.97%, making current figures below the 35-year average.

Trends for Small Business Sales

1. Number of Businesses for Sale.

Once again private business sales listings have increased in the December quarter, with the BizExchange Index for Private Business Values reporting a 13% rise in sale listings, reaching record levels. BizExchange chairman David Bird reported it was hard to tell how many private businesses were for sale because they’re not all advertised, but what is advertised was a good example, the advertising numbers have risen dramatically over the six years. The demographics of business owners is increasingly having an impact because of the Baby Boomer “bubble”, many businesses were formed during the Howard government years and demographically we’ve got more people including business owners reaching retirement age.

2. Small Business Values.

The BizExchange report found the percentage of businesses with EBIT (Earnings Before Interest and Tax) values between 1 and 2 remained fairly steady from the previous quarter which also saw some softening in prices, particularly businesses with turnovers of $500,000 to $1 million and $5 million to $15 million. The newsagency industry has seen falls of between 20 -25% over the last 5 years which has been caused by an oversupply of sellers and a set of economic conditions that sapped the confidence of would be buyers.

3. Buyers.

Traditionally a Federal Election year causes significant uncertainty amongst buyers, however since the announcement of the federal election date the market has gone against that trend, it may be too early to call it a trend but green shoots are appearing as buyers are returning to the market. Aside from the Federal election issue there is good economic reason for the renewed interest in buying a businesses; Interest rates have been reduced significantly over the past 18 months. The prices of Small Businesses have fallen substantially over recent years. For younger people in business it is easier to buy an existing business than raise the capital to start a business. The global economy continues to have a significant influence on confidence levels and buying decisions, any hiccups from Europe may undermine the emerging confidence. The high Australian dollar has also affected businesses it impacts on exporters, making it difficult to sell into foreign countries. But it also makes input costs here lower. it’s a positive and a negative at the same time, depending on if you’re an importer or an exporter. Global conditions are not the only ones influencing business sales, retail and tourism sectors are under a lot of pressure, alongside the mining and construction industries.