More than guts: Four checkboxes for small business to make it in WA
By Peter Milne
Confidence is a must for starting a new business, but needs to be partnered with a healthy dose of reality, according to a banker with access to the numbers for 775,000 enterprises across the country.
Rebecca Warren, who heads up the Commonwealth Bank’s small business division – customers with less than $3 million revenue and loans of less than $1 million – knows small business is not for the faint-hearted.
Businesses relying on discretionary spending are experiencing tougher times than others.Credit: Jessica Wyld
“I don’t mind saying I don’t think I’ve got the guts to do it,” she said.
“You don’t get the same paycheck every week, you get paid after your landlord, your staff, the government – everyone else.”
When talking to a customer wanting to start a business Warren looks for four things she thinks increases the likelihood of success.
“Without breaking their spirit, I like to ask them ‘Can you talk me through your downside planning?’”
“If they answer that really solidly and efficiently, I get a lot of peace of mind.”
Not having thought through the implications of losing a key employee or a competitor opening up next door are warning signs.
The second check for Warren is that there is more than gut feeling behind the business idea, and the customer has direct experience of the relevant industry or location, or has sought counsel from those who do.
The 20-plus years banking veteran also probes whether the aspirant understands the time commitment required and has not been seduced by visions of a beautiful work-life balance, no boss and not having to go into the office, as the reality is very different.
“Being a small business owner isn’t for the faint-hearted,” says Rebecca Warren - boss of small business banking for the Commonwealth Bank.Credit: Commonwealth Bank
“A small business owner is incredibly time-poor,” Warren said.
“It’s hard yakka, and it’s a lot of grit required to run it.”
Warren said her final concern was whether the owner understood the nuances and seasonality of the sector they were entering and had enough capital to survive the first 18-24 months – the most vulnerable time for any small business.
Despite the risks, there is no shortage of Australians wanting to start a business – or choosing to close one down.
Australia had almost 2.6 million actively trading businesses in mid-2023, the latest figures available. About 15 per cent had traded for a less than a year and almost as many had shut up shop, leaving a net gain of 50,000 businesses in 12 months.
Being time-poor can cost
One modern burden small business owners are particularly vulnerable to is cyber scams.
“A large portion of the scams are targeting small businesses, and it’s gut-wrenching for them,” Warren said.
“A lot of small businesses basically don’t protect their perimeter.”
Hacked email systems allow criminals to observe what is going on and pounce at the right moment so nothing seems askew.
They commonly send realistic-looking fake invoices through just before the genuine one is due with an innocuous-sounding request to change banking details.
“The time-poor small business owner grabs the email, saves them as a new payee, punches the money out,” Warren said, and they only know they have been hacked when they are chased for an unpaid invoice.
The Commonwealth Bank has spent $750 million in the past 12 months on cybersecurity. Like its competitors, its customers now see the account name after they enter branch and bank account details for a payment, providing a check against fraud.
WA small business tracking the best
While the Commonwealth Bank services one in four of Australian small businesses in WA, it has a third of the market thanks to its ownership of Perth-based Bankwest, which is now solely retail-focused with business customers being transferred to the parent company.
Warren said small businesses in WA were performing better than the national average.
Loan data from the Commonwealth’s 240,000 small business customers in WA shows some surprising investment shifts in the past 12 months with purchases of electric vehicles tripling and loans for light commercial vehicles up four-fold.
Warren said asset finance was a leading indicator of a healthy business sector.
She said a 2.2 per cent jump in consumer spending was the highest in the nation; however, with inflation running a higher rate, even WA is showing a decline in the real value of spending.
“It’s always difficult to run a small business, but on a relative basis, you could argue it’s the state to be in,” she said.
Warren said sectors such as hospitality that relied on discretionary spending were doing it toughest.
Unsurprisingly, a recent national Commonwealth Bank survey showed a third of small business owners are concerned about rising input costs. The main reason given for buying electric vehicles was to reduce costs, not emissions.
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