CPA Australia: 44 per cent of small businesses in Hong Kong sought external funds for survival before Covid-19 pandemic

Photo by Sarah Arista

The 11th APAC Small Business Survey conducted by CPA Australia reveals that 44 per cent of small businesses in Hong Kong had sought external funds for survival in 2019, while 25 per cent of respondents experienced difficulties in paying debts last year and 29 per cent expected the difficulty to continue.

This suggests that nearly three in ten of small businesses in Hong Kong expect to have immediate and severe liquidity issues in 2020 even before the COVID-19 pandemic.

Mr. Janssen Chan, CPA Australia’s Deputy Divisional President 2020 and Chairperson of SME Committee in Greater China indicated that according to the survey findings the challenges for Hong Kong small businesses were very difficult in 2019.

“Nearly three in ten of Hong Kong small businesses expect to have cashflow problems this year. In addition, since the COVID-19 outbreak, we foresee a higher percentage of small businesses may collapse in the next 3 to 6 months as a result of a sharp decline in business turnover and the lack of positive cash flow to stay afloat,” he said.

“Political instability (44 per cent) and poor overall economic environment (37 per cent) were the biggest negative factors impacting Hong Kong businesses last year. Coupled with the COVID-19 pandemic this year, the present situation for Hong Kong small businesses has become even more severe, and many will struggle to survive this crisis,” he added.

Chan also noted that “the Hong Kong Government has introduced a series of relief measures to address local SMEs’ financial burden including low-interest loan schemes, reduction of profits tax, introducing utility subsidies and cash handouts to incentivise domestic consumption.

Recommendations for small business owners

Considering only 26 per cent of respondents expect their business to grow and 73 per cent of all surveyed respondents have intentions to access finance in the next 12 months even before the COVID-19 pandemic, CPA Australia recommends that the small business owners should consider evaluating the existing corporate leverage ratio and forecasting sales revenue before accessing new external finance.

Like other countries globally, small businesses in Hong Kong have been severely affected by the COVID-19 pandemic. In particular, small businesses in the retail, catering and tourism industries have been facing many challenges in operating brick-and-mortar businesses.

“Given the results of profitability from the investment of technology and doing businesses online in Hong Kong are below the average amongst the surveyed markets in 2019, there is a significant room for improvement. It is time for the Hong Kong small businesses to consider transforming their business to respond to changing consumer behavior and technological trends.” Chan said.

Only 43 per cent of respondents in Hong Kong said they had generated more than 10 per cent of their income from online sales last year, compared with 82 per cent in neighboring Shenzhen and 86 per cent in Guangzhou. Further, compared to only 30 per cent of respondents in Hong Kong, over 60 per cent of respondents in Shenzhen and Guangzhou stated that their investment in technology had made their business more profitable.

“Small business owners in Hong Kong should consider learning from the experience of doing businesses online in these cities in the Greater Bay Area and exploring investment in technologies that are helpful to boost business growth. In the long term, they should also consider cooperating with business partners in these cities and expanding the businesses outside the Hong Kong market. With a viable new business plan, small businesses in Hong Kong would have a higher chance to gain finance and investment.” Chan suggested. 

For small business owners in need of financial support to sustain their business, Chan recommends “utilizing technology and digital tools to improve cost control and increase sales revenue, and at the same time, prioritize adjusting business models to prepare for external challenges. In addition, the launch of virtual banks in Hong Kong provides a new channel for SMEs to seek external finance. Small businesses with resilience and flexibility under adverse economic conditions will remain competitive and eventually manage through these tough times” Chan said.