SMEs tip business conditions to worsen in 2011 as Christmas parties get the chop

Just 10% of SMEs are planning to hold Christmas parties for their clients this year and only half will bother with a staff party, as concerns over trading conditions in 2011 weigh heavily on many entrepreneurs.

The latest Sensis Business Index survey of 1,800 small and medium businesses shows business confidence continued to increase in October, marketing two consecutive quarters of improving confidence.

Report author Christina Singh says the improvement in confidence follows better sales, employment and prices readings, suggesting the economy is underway, although its strength differs from sector to sector.

However, the outlook for trading conditions is decidedly mixed.

In terms of Christmas trade, 30% of respondents said they expected festive-season sales to increase (with the average increase of 18%), 70% of respondents said they expected Christmas sales to be around the same level of last year, and 30% were tipping a worse Christmas (with the average fall in Christmas sales tipped at 27%).

“We are seeing weakness in terms of Christmas trading conditions, dependent on their business and dependent on their sector,” Singh says.

“Businesses are telling us that they are seeing people not spending – the trade is not coming through the door.”

The concerns of SMEs appear to be well founded.

A separate survey of 500 consumers by financial comparison website Mozo found 43% of all respondents are planning to spend significantly less this Christmas, while 60% of mortgage holders were planning to significantly cut spending.

But SMEs are not just fretting about Christmas. Singh says SMEs also expect conditions to be mixed in 2011, and deteriorate slightly.

Singh says while rising interest rates and the strong Australian dollar are slight concerns among SMEs, the biggest worry is a simple drop in demand brought about by lower consumer sentiment.

Concerns about trading conditions over Christmas and beyond appear to have led SME owners to tighten the purse strings in one very important area – the Christmas party.

The Sensis report says 50% of SMEs will not have a Christmas party for staff this year, while 90% won’t have a client Christmas party.

While Singh says it should be remembered that many small business either have no staff or a very small number of staff and so may not feel the need for a Christmas party, she says there is evidence that economic conditions are playing a part in forcing hospitality cutbacks.

For example, in Victoria, where business confidence was high, 56% of firms will hold a staff Christmas party. However, in New South Wales, where confidence was lower, just 46% of firms will hold a staff function.

But it is businesses in Australia’s territories that are the most festive this year. Just under 60% of firms in the Northern Territory will hold a Christmas party for staff this year, while 65% of businesses in the ACT will have a staff party.

“The ACT is the Christmas party capital of Australia,” Singh says.