Growth forecasts bullish but confidence bottoming out

24 October 2011

Balance sheets are in the black, and in some instances at record levels for the month, quarter or year but the confidence of Australian private businesses doesn't match the books according to PwC's Private Business Barometer Pulse.

PwC Private Clients partner Gregory Will says, "Less than one in 10 of the businesses we surveyed described their confidence levels as high, the majority were low or medium."

"Factors beyond their control such as economic instability are making private business owners cautious not to put their head above the parapet for fear of being 'cut' down".

Conversely, private businesses are bullish about growth over both the short and medium term. For the next six months businesses surveyed in the PwC Private Business Barometer Pulse forecast sales and profit growth of 14 and 18 per cent respectively.

The PwC Private Business Barometer Pulse provides a timely snapshot of the private business sector. It is compiled through an online survey of 335 private businesses surveyed on the topics of growth, funding, people and business operations. In addition to the survey, business owner focus groups were held in Western Australian, Victoria and Queensland. The reflections and experiences of those business owners are shared in the publication.

Growth

Private business owners rate growth as their number one challenge. More specifically - the top three challenges to growth, in order, are low cost margins and competitive cost pricing, developing new business and the state of the Australian economy.

Peter Cargin, CFO of The Sumo Visual Group in Victoria shares his experience, "We have witnessed a real shift in focus towards cost reduction. This is particularly relevant for our customers in the retail space with tendering requests, consolidation of their procurements processes and demanding more cost effective solutions from us."

According to Mr Will, private businesses don't seem deterred by the challenges. Figures from the PwC Private Business Barometer Pulse reveal that medium term sales and profit is 24 per cent and 25 per cent, respectively.

Mr Will says, "Strong projections have forced private businesses to look at how they are going to achieve these targets. They will need more than organic growth."

According to the PwC Private Business Barometer Pulse, a third of businesses (33%) plan to expand into new product lines as a means to drive growth. Six months ago, around half (51%) had intended to rely solely on organic growth.

Case in point, Brian Briscoe, owner of Briscoe Search & Consulting said, "We're aggressively creating new product lines but at the same time being incredibly careful about our brand distinction and preventing brand dilution"

People

A lack of confidence has not dampened the desire of private business owners to recruit new staff. More than half (57%) are looking to recruit in the next six months.

Mr Will says, "The intention to hire has been consistent for a number of years now, the challenge lies in sourcing the talent."

"Now is a good time, to assess your competitor's talent. It's also timely to review and invest in initiatives such as on-the job training and systems and tools to better support existing staff."

Michael Da Gama Pinto, Senior Associate at Harbert Australia Private Equity says, "We're seeing employee retention plans become a lot more important in the marketplace when trying to attract talent."

Funding

The reluctance by nearly two thirds (60%) of the private businesses surveyed to consider significant investments in the next 12 months is a reflection of low confidence according to Mr Will.

"Now is the time when businesses should be looking to invest. Prudent management of costs and expenditure during the GFC improved many private businesses profitability and sales."

But as Ruth Richardson Clark, CFO of Victorian based cosmetics distributor, The Heat Group says, "The numbers say one thing but the emotions say no."

Mr Will challenges businesses to look at both sides of the equation, "What is riskier, to move forward or to be left behind?"

"Look at your balance sheet, trust it and take advantage of the opportunities that are out there in the market."

Senior Associate at Harbert Australia Private Equity, Michael Da Gama Pinto says, "Now is the ideal time to be looking at opportunities in the market and taking action. The balance sheets in the businesses we look at couldn't be stronger at this point in time and most of them have their leverage under control."

Raising capital recently and in the longer term reportedly wasn't a problem for just under half of the businesses surveyed. However forty per cent of business that had difficulty with funding said the main challenge was cost of funding and 35 per cent said availability of credit.

Two out of ten said the relationship with their bank has changed too saying "they [the banks] are being more stringent, risk averse and not as flexible".

Business Operations

Social media and mobile devices have become a major channel for how just shy of half (41%) of private businesses communicate with their customers.

Mr Will says, "Online and social media, and mobile devices are fast becoming the 'normal' communication channels with customers. Innovative businesses are not resisting the change but embracing it."

Craig Davison owner of The Outdoor Furniture Specialists agrees, "We spent hundreds of thousands over the years on Yellow Pages now that is down to zero, and the money is now being spent on online media sites and other social media including Facebook."

Mr Will says, "As the new channels of communication 'open up' there is a need to focus on value not price. Providing a different or better customer experience can be more powerful than a better price."

About the PwC Private Clients Barometer Pulse

The PwC Private Business Barometer Pulse provides a timely snapshot of the private business sector as at October 2011. It is compiled through an independent online survey of 335 Australian private businesses that are surveyed on the topics of growth, funding, people and business operations. Focus groups of private business owners were also held in multiple states (Western Australia, Victoria & Queensland). The reflections and experiences of those business owners are also shared in the publication.

All of the survey and focus group participants represent private businesses with an annual turnover of between A$10 and $100 million.

The PwC Private Business Barometer Pulse is the follow up to PwC's annual Private Business Barometer, a survey of more than 1000 Australian private businesses.

Research for both is undertaken by Roy Morgan.

About PwC

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