Trust the key concern for jobs and economic growth
Fickle tastes and diminishing customer loyalty are the biggest threats to Australian business, according to new research.
QBE has released a Business Risk Report1, which finds that Australia’s two million small and medium-sized businesses do not necessarily worry about rising interest rates but are terrified that customers may turn on them at a moment’s notice.
The research2 found that more than one in three small businesses see losing clients as the biggest risk to their cash flow, compared to only one in 20 who feared a power cut, fire or adverse weather event.
The findings are important because small business is fundamental to the Australian economy, contributing more than $343 billion to the economy every year3, and employing more than seven million people.
Contrary to popular belief, 70 per cent of all workers in the private sector are employed in small business, rather than large national or multi-national companies4.
Other key risks to their cash flow identified in the research include customers refusing to pay invoices on time (24%), rising costs (20%) and clients going bankrupt (6%).
QBE Executive General Manager, Intermediary Distribution Jason Clarke said customer loyalty was one of many contributing factors to running a successful business.
“Australian companies need to recognise that customers today aren’t necessarily as loyal as their parents or grandparents’ generations,” Mr Clarke said.
“This means companies need to work harder to earn customer loyalty.
“Companies that don’t get this right are at a higher risk of losing their customer base,” he said.
Half of all businesses fail in the first three years of operation5 and poor cash flow is cited as a factor in 40 per cent of business failures6.
“It’s well known that cash flow is the make or break of business but many of the blockers to cash flow are unpredictable,” Mr Clarke said.
“Blockers can result from natural catastrophes and human errors – human error actually causes more than a quarter of all problems.
“It makes sense for entrepreneurs to mitigate the risks they can control.”
The research shows that the concerns of businesses are impacted by their type of offering, with rising costs more of a concern for retailers (38%), than it is for manufacturers (19%), offices (18%) and home works (18%).
Despite identifying a number of risks to their survival, close to half (43%) of SMEs have never heard of business interruption insurance and, alarmingly, one in five (19%) have no insurance at all.
The research also reveals that trust issues are more acute for millennial business owners, with their biggest single worry being that clients will not pay invoices on time.
The majority of Australian SMEs (56%) are run by Millennials or Gen X7.
“Certainty in an uncertain world is acutely felt by small businesses who must plan their futures without the breadth of support traditionally enjoyed by larger organisations,” Mr Clarke concluded.
|Biggest considered risks to company cash flow|
|Customers failing to pay invoices on time||24|
|Power cut, fire or adverse weather event||6|
|Major client going bankrupt||6|
QBE Business Interruption insurance
QBE offers business interruption insurance through commercial packages for SMEs, which can be accessed through a broker or QBE authorised representative.
QBE Commercial Packages provide comprehensive protection for:
- Property damage or loss
- Interruption to business income
- Machinery or electronic breakdown
- Third party injury or property damage from business operations or products
Find out more about QBE Business Packages.
2 Galaxy Research, QBE SME Study, October 2017
3 http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1516/Perform 4 https://www.canstar.com.au/business-loans/small-medium-businesses-contributing-half-australias-gdp
5 81650 Counts of Australian Businesses, including Entries and Exits, Jun 2011 to Jun 2015