Australian businesses are shedding staff and slashing business costs to cope with weak consumer demand, according to the August Sensis® Business Index released today.

The survey, which provides the latest snapshot of small and medium business (up to 199 employees) activity in Australia, interviewed 1,800 businesses nationwide from 31 July to 22 August 2008.

Report author Ms Christena Singh said weak demand was having a significant impact on business confidence, profitability and the willingness to invest in capital and staff.

“Demand for goods and services has weakened further since June, with the sales indicator now at the lowest level since August 2001.

“Small businesses are expecting a further deterioration in demand in the short and medium terms. In fact, these are the weakest expectations for the year ahead we have seen in the 15 years we have been producing the report,” Ms Singh said.

The finance and insurance sector have been the hardest hit, recording the weakest sales performance in the past quarter, closely followed by the retail trade sector.

Overall, lack of work is the number one concern for Australian small businesses, followed by the general economic climate and cashflow. Finding quality staff, which was the main concern during most of the last two years, now comes in at number four.

“Lack of work is the most pressing concern for one in five small businesses. We have not seen this level of concern since November 2001.

“By comparison, during late 2004 small businesses registered approximately half the level of concern about lack of work than they are at present,” she explained.

However, Ms Singh noted that small businesses were not sitting idly by in the face of sluggish activity.

The Sensis® Business Index shows more than six in 10 small businesses are impacted by the current economic environment, rising to three in four in New South Wales, the worst affected state.

“Most small businesses are making changes in response to these slowing economic conditions.

“More than one in five small businesses have responded by reducing business costs. And just over 10 per cent have responded by decreasing employment.

“Nevertheless, many businesses are taking a more aggressive stance, including advertising more, diversifying the business, seeking new business opportunities and developing new products in an attempt to attract customers,” she added.

Overall, 11 per cent of small businesses are advertising more, eight per cent are diversifying business, seven per cent are looking for new business and customers, and six per cent are adding new products or services.

Twelve per cent are taking no action in response to the economic climate.

The report also shows 14 per cent of small businesses overall have reduced their workforce since May.

“Our workforce data further highlights the impact the current economic environment is having on employment decisions of small businesses,” she noted.

Overall, about four in 10 businesses said they reduced full time employment because of economic conditions, while nearly three in 10 said it was because of a down turn in business or they were shutting down part of the business. About 23 per cent said it was because of resourcing issues, including staff resignations or long term leave, including maternity leave.

“Small businesses also told us that lack of work or money is the main impediment to taking on new employees in the future,” she added.

The cost of hiring staff, the current economic environment and finding suitable staff are other key barriers to employment by small businesses.

“In fact, there has not been too much good news from the small business sector this quarter.”

Profitability amongst small businesses has fallen substantially over the last two quarters. More than four in 10 businesses have experienced an erosion in profit since June this year.

“Not surprisingly, business confidence has mirrored the negative scenario currently facing small businesses, falling eight percentage points to reach the lowest level in the 15-year history of the Sensis® Business Index.”

The business confidence indicator currently sits at 25 per cent, which is less than half the level recorded this time last year.

“Australia is still experiencing a two-speed economy based on commodity markets. We have seen New South Wales continue to haemorrhage, with business confidence sinking to just seven per cent.

“However, this quarter we have also seen a significant contraction in the boom state of Western Australia,” she said.

Business confidence in Western Australia has fallen 12 percentage points since June and now sits at 43 per cent.

Ms Singh commented that while current trading conditions are front and centre for most small businesses, they do have one eye on environmental issues.

The report shows 12 per cent of small businesses believe climate change will have the most impact on business, while emissions trading is the main concern for 10 per cent. Water shortage, peak oil crisis and energy costs are other environmental issues that businesses expect will have a major impact on their businesses.

Support for the Federal Government has also fallen further during the quarter. Nearly four in 10 small businesses believe the Government’s policies work against small business, taking it to the lowest level of support since May 2001.

Poor economic management is the key reason small businesses gave for not supporting the Government, followed by the perception there is too much bureaucracy and that interest rates are too high.

About one in 10 businesses believe the Government’s policies support small business. The key reasons for support include a belief the Government is trying to help small business, its support for small business management training, its efforts to reduce red tape, and the creation of a stable business environment.

About the Sensis® Business Index
The Sensis® Business Index is a quarterly survey of the small and medium enterprise (SME) market. The survey has been conducted quarterly since 1993. It is one of the most extensive and regular surveys of Australian small business.

All percentages are net balance, which represents the total number of positive responses minus the number of negative responses. All results are based on the responses of SMEs surveyed for the August 08 Sensis® Business Index. The Sensis® Business Index (formerly known as the Yellow Pages® Business Index) has been produced quarterly since 1993.

About Sensis

Sensis is Telstra's advertising business and Australia's leading directories information resource, helping Australians find, buy and sell. Sensis delivers innovative and integrated local search and digital marketing solutions via print, online, voice and mobile channels to connect Australians 24 hours a day, seven days a week. Sensis' powerful, multi-channel portfolio provides an unparalleled local information source incorporating the White Pages® and Yellow Pages® directories; the MediaSmart digital advertising business; the Whereis® digital mapping business; the Citysearch® entertainment and lifestyle website; the sensis.com.au search engine; the 1234 operator-assisted, premium voice information service; and the accommodation website gostay.com.au. Sensis is also a partner in some of China's most popular websites including real estate and home furnishings website, SouFun.com; auto websites Autohome.com and Che168.com; and digital devices websites IT168.com and PCPop.com.cn.