SMEs have newfound optimism heading into the new year, according to new industry research carried out by Prospa NZ.
While most businesses remain cautiously optimistic about the broader economy, confidence among New Zealand SMEs has strengthened, according to the latest Prospa NZ research, demonstrating a sector that is taking control in uncertain times.
The latest Prospa NZ SME Sentiment Tracker Report reveals high levels of belief in their own stability and future, with 92 percent of SMEs feeling very or somewhat confident about the next 12 months (up from 87 percent in April and October 2024), while 91 percent are confident about the next five years (an increase from 85 percent).
“It’s been a tough economy for five years now, and we keep waiting for things to finally improve. But many Kiwi SMEs are sick of hoping and waiting for things to turn around. ” They know the economic challenges are real, but their optimism hasn’t disappeared. Instead, they’re more confident than ever in their own ability to tough it out and succeed. They’ve accepted the new normal and are being pragmatic by focusing on what they can control,” said Adrienne Begbie, Managing Director of Prospa NZ.
Confidence in their own business performance remains high, even as expectations for the wider market remain cautious.
Despite strengthening business confidence over the short and long term, profit expectations have softened. While 72 percent expect profits to rise or stay steady, 26 percent now expect profits to decline, a notable jump from 15 percent a year ago. Business health ratings have also softened, with over half of SMEs (55 percent) describing their business as good, down from 62 percent in October 2024.
While most business owners feel confident in their ability to navigate current conditions, their view of the broader economy is less optimistic. As one SME owner observed, customers are feeling financial pressure and cutting back on spend.
Less than half (45 percent) of SME owners expect market conditions to improve over the next 12 months, but 27 percent now believe conditions will not improve (up from 19 percent in April and 17 percent in October 2024).
Rising costs continue to dominate as the biggest challenge for SMEs (51 percent), followed by revenue and market demand (36 percent), the economic environment (20 percent), and workforce and staffing (11 percent). As one owner stated, “Rising operational costs affecting profit margins in New Zealand, is the biggest challenge facing my business.”
In terms of expenses, staffing and recruitment (17 percent) remain the largest costs, followed by government payments and tax (14 percent). Utilities and telecommunications (7 percent), which have become more prominent rising sharply from just one percent in April.
SMEs are actively adjusting their operations rather than waiting for recovery. Instead of standing still and hoping for the economy to get better, they are proactively making strategic changes.
In anticipation of better market conditions, 34 percent plan to adjust pricing, 31 percent will diversify their offerings, 31 percent expect to invest in marketing and promotion, and 28 percent plan to hire more staff - all significant increases since April (22 percent, 23 percent, 18 percent, and 15 percent, respectively), demonstrating a heightened willingness to invest and change
Cashflow management, while improving, remains a complex area. As one respondent noted, “Managing cashflow effectively while ensuring timely payment and operational stability remains challenging.” Despite this, cashflow has generally strengthened, indicating better operational discipline across the sector.
SMEs are recommended to maintain cash reserves to cover at least three months of business expenses. The proportion of Kiwi SMEs who have a healthy cash reserve has increased, with more now holding four to six months of savings (26 percent, up from 17 percent), or more than ten months (18 percent, up from 10 percent).
However, many SMEs still do not have enough savings, with 28 percent of small businesses having one to three months in cash reserves, and 17 percent holding less than a month's reserves.
Access to funding is also part of this pragmatic approach. One in three (33 percent) SMEs plan to use external finance in the next 12 months. Trust in alternative lenders has also risen from 17 percent to 26 percent since April, reflecting a growing trend in seeking tailored funding solutions beyond traditional banks.
“We know that Kiwi small businesses are notorious for their DIY spirit, but this is truly that resilience in practice,” Begbie added.
“Owners aren’t waiting anymore for the perfect conditions. They’re backing their own judgment and finding their own way to keep growing. Businesses have accepted that these are the conditions they must operate in and they’re getting on with it. The focus now is on staying flexible, regardless of whether interest rates ease the burden or the Government steps in. That’s why we’re seeing business owners actively investing in things that will keep their business moving, like marketing or growing their team.”
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