How does financial performance vary across SME sectors?

Financial healthcheck across SME sectors

Overview
In the UAE, SMEs represent 95% of all firms, and cover almost all sectors. As the national economy has gone from strength to strength in recent quarters, SMEs have been involved in every area of growth. But which sectors are making the most of these conditions, and how do you match up to your peers?
Sector breakdown
By number of firms: Trading 57%; Services 35%; Manufacturing 8%.
By contribution to GDP: Trading 47%; Services 41%; Manufacturing 12%.
By number of employees: Trading 51%; Services 33%; Manufacturing 16%.
(Source: Dubai 2013 Survey)

As a general overview, it appears that manufacturing firms make the biggest financial impact in relative terms, contributing 12% of GDP while only making up 8% of the SME landscape. Trading, by comparison, constitutes a higher number of firms but makes a relatively lower contribution to GDP.

However, when it comes to labour productivity, the picture is reversed:
Typical productivity per SME unit: Trading – AED 210,447; Manufacturing – AED 122,255; Services – AED 118,480.
Source: Dubai Statistics Centre

Confidence
SME business confidence index: Q1 2012 – 112.2; Q1 2013 – 119.4; Q1 2014 – 126.4.
(Source: SME Business Pulse)
In keeping with all parts of the UAE economy, confidence has been rising steadily amongst SMEs, as the post-global economic downturns gains ever more ground. Given their importance to the total business picture, this confident is critical. (SMEs represent 92% of all UAE firms and contribute around 60% of GDP. (Source: UAE Ministry of Finance.))

Funding
Sector most requiring short-term financing: Trading.
Sector most requiring long-term financing: Manufacturing.
(Source: 2013 Dubai SME survey)

Typical profitability margins

Trading
Gross margin 5–40% of revenue. Operating margin 3–15%. Net margin 2–14%.
Net margins are the highest (10–14%) amongst SMEs trading in building materials, and lowest (2–7%) in jewelry and precious metal wholesales.
Although SMEs trading in machinery and equipment have the highest gross margins (30-40%), these are eroded significantly at an operating level due to high salary costs (net profit 6-12%).

Services
Gross margin 15–70% of revenue. Operating margin 2–25%. Net margin 2–22%.
Show the most extreme differences in profit margins. At one end of the spectrum are Business Services firms (10–20% net profit margin) and Construction & Contracting (7–17%); at the other are Transport & Logistics and Travel Agencies/Tour Operators (2–8%).
Restaurant & Catering SMEs suffer the same issue as machinery traders above: a high gross margin (50–60%) is reduced to 10-15% net profit margin, predominantly due to staff costs.

Manufacturing
Gross margin 30–40% of revenue. Operating margin 10–20%. Net margin 7–18%.
There are narrower variances here, because these SMEs tend to have low interest obligations, due to a low level of debt leverage.
(Source: Dun & Bradstreet).

Typical return on capex
Trading SMEs: 18–30%.
Services SMEs: 20–40%.
Manufacturing SMEs: 25–35%
(Source: Dun & Bradstreet).

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