SMEs have stopped waiting for recovery

New Zealand's small businesses are done waiting for better times. Despite facing profit pressures and rising costs, 92% of SMEs are confident about the year ahead, according to Prospa NZ's latest research of 500 business owners.

This confidence has jumped from 87% six months ago, while five-year confidence climbed to 91% from 85%. Yet these same businesses report softening profits, with 26% expecting profit declines compared to just 15% a year ago.

Prospa NZ managing director Adrienne Begbie says that after five difficult years and constant whispers of ‘green shoots’ that don’t materialise, SMEs have stopped waiting for the perfect conditions.

“I think people are in business, and they aren’t just waiting around anymore,” Begbie told NZ Adviser.

“The businesses that have gotten this far since the lockdowns, they’ve survived. Everyone is waiting for the ‘thrive’, but there’s a sense of ‘let’s just get on with it now.’ The confidence figures were actually quite a big jump, albeit cautious.”

Rising costs are still the dominant challenge for 51% of SMEs, followed by revenue and market demand at 36%. Staffing and recruitment is the largest expense category at 17%, with government payments and tax taking 14%. Utilities and telecommunications costs have surged from 1% to 7% of major expenses since April.

Despite these pressures, SMEs are rating their business health lower than last year. Only 55% describe their business as "good," down from 62% in October 2024. Their view of the broader economy is even less optimistic - just 45% expect market conditions to improve over the next 12 months, while 27% believe conditions won't improve at all.

Taking action over waiting

Rather than hoping for improvement, SMEs are now actively adjusting the way they do things.

A third plan to adjust pricing, 31% will diversify their offerings, 31% intend to invest in marketing, and 28% plan to hire more staff. These figures are significant increases from April, when only 22% planned price adjustments and 15% expected to hire.

Cash reserves also have improved for some businesses. Those holding 4-6 months of reserves increased to 26% from 17%, while businesses with more than 10 months jumped to 18% from 10%. However, 28% still operate with only 1-3 months of cash reserves, and 17% have less than a month's buffer—below the recommended three-month minimum.

Begbie says rising costs has been the biggest challenge for SMEs for some time, and this hasn’t changed - but there’s hope that we’ve gotten through the worst of the winter and are on the edge of a better spring.

“Rising costs continue to dominate as the biggest challenges, and that’s followed by revenue and market demand, which comes with consumer confidence,” Begbie says.

“But it’s also spring and the weather is nicer, and people have a bit more money in their pockets with the rates coming down. They’re happy to get out and spend it. Kiwi SMEs do have a DIY attitude, so they’re just rolling up their sleeves and getting on with it.”

She notes that businesses are passing on rising costs where it makes sense, and this is a better alternative to sitting on their hands and waiting for a better recovery.

Shifting funding patterns

One in three SMEs plans to use external finance in the next 12 months. Trust in alternative lenders has grown substantially, rising from 17% to 26% since April. This shift suggests businesses are looking beyond traditional banks for funding.

Begbie says the results of the latest survey largely reflect what she’s seen in Prospa’s own funding metrics. Approval rates - which typically correspond to the health of a business - are up, which suggests businesses are in better shape. This is particularly noticeable in deals that have come through advisers, as approval and take-up rates tend to be high.

“I also look at approval to settlement rates,” Begbie says.

“Once clients have gotten approved through advisers, we have an 80+% take-up rate. That plays into the confidence - once people have got the money, they feel confident enough to take it and invest into the business. Those two key metrics have been very strong, along with growth numbers.”

The research shows businesses accepting current conditions as their new operating environment rather than a temporary challenge. Customer spending is till constrained, with one survey respondent noting customers are "feeling financial pressure and cutting back on spend." However, businesses are moving forward anyway.

“The focus really has to be on staying flexible, regardless of whether interest rates ease,” Begbie says.

“Its about moving with the times, and that’s what businesses are doing. They’re finding ways to keep going and stay in business.”