PWC Gives Private Businesses a Mixed Report Card

The latest PricewaterhouseCoopers Private Business Barometer shows that progressive Australian SMEs are emerging from the economic downturn ready for growth. However, only one in five businesses are preparing for the upturn. The Barometer indicates that businesses seem more focused on short-term performance rather than positioning themselves to exploit a return to economic growth. Key findings of the October, 2009 survey are:

Returning Optimism Presents Opportunities for Growth

• While growth has slowed since the Private Business Barometer in February, 2007, private businesses still outstripped the performance of the general economy by increasing sales by an average of 6.8 per cent and profits by an average of 5.8 per cent.

• The rate of decline in sales and profit growth eased in the last six months, as the economy showed tentative signs of recovery.

• Nearly 40 per cent of businesses that met or exceeded set targets in the past financial year could not explain why.

General Optimism But Limited Planning

• Respondents are generally more optimistic of their prospects than in the last Private Business Barometer. On average, they planned to grow sales by 6.6 per cent and profits by 7.3 per cent in the next year.

• Businesses are primarily planning to grow organically in the short and medium term. Whilst respondents are still cautious, about half are looking to make investments in their business, up significantly from March 2009.

Funding Peak Concern for Business

• The top challenge facing private businesses is funding.

• Respondents favour internally generated funding and existing shareholders as their primary sources of finance, while banks have regained favour despite repricing loans and applying tougher credit criteria.

Wages Concern Replaces War for Talent

• Only 15.3 per cent of businesses have firm plans to hire additional employees and more than a third have made staff redundant in the past twelve months.

• With softening demand reducing the competition for talent, businesses are seeing higher wage costs as their major hiring constraint. Fifty-three per cent of businesses identified high wage costs as their top hiring constraint.

• Many businesses have reduced their staff costs in other ways with 22 per cent of respondents offering flexible working hours and 13.3 per cent unpaid leave.

Formal Business Plans Driven by Lenders

• Three-quarters of private businesses have a formal business plan, but this is largely motivated by lenders’ insistence that borrowers attach a plan to their loan application.

Pricing is Driving Competition

• Nearly one-third (30.4 per cent) of businesses now rank price as a key driver of competition, up from 11.7 per cent in February 2007. Manufacturing, retail and property are most affected by the pressure on margins resulting from the downturn.

Domestic Markets the Key

• Private businesses draw 93.5 per cent of their revenue from domestic markets. New South Wales and Victoria are the biggest markets and account for almost 60 per cent of total revenues.

Small Rise in Planned Exits

• Seventy-four per cent of respondents are not planning to exit the business in the next two years, up slightly from March 2009. Among those that are, the most popular option is selling the business to family members.

• Despite the rise in business plans, two out of three private businesses have no formal succession, handover or exit arrangements.