This year may be toughest for SMEs

The effects of the recession are far from over, according to research from Massey University, which indicates this year may become the toughest year since the downturn began for many small-to-medium businesses.

Professor David Deakins, who took part in the research, says a spike in business failures and staff cutbacks may occur this year.

The Managing Under Recession report, which surveyed 1539 small-to-medium enterprises (SMEs) in 2009, found many owners had relied on personal savings to back up their balance sheets since the recession began.

But while "self financing" may prove effective in the short term, businesses are becoming vulnerable as personal resources run dry.

"This problem is already evident with an increasing number of firms who reported to have felt the recession more in 2009 compared to 2008," the report says.

Deakins said businesses that had exhausted their internal sources of finance would then find it difficult to source external funding, such as bank loans. "One of the things that financial institutions ask [before providing finance] is 'what internal resources does the firm have'?"

Sarah Trotman, managing director of Bizzone, an SME support agency, said: "It's tougher now than it was 12 months ago because [a year ago] they had their personal resources to call upon, and those personal resources have now dried up. We're a long way from the challenges that business owners have been facing in the last two years being over."

She said the financial burden facing SMEs was causing a lot of strain, including failed marriages.

BNZ senior economist Craig Ebert said recent data from both New Zealand and the United States indicated that the smaller a businesses was, the more difficulty it would have weathering the recession's impact.

"The recovery phase will be more difficult for SMEs. Smaller firms just don't have the buffers."

SMEs account for about 96 per cent of all enterprises in New Zealand, according to the Ministry of Economic Development.