Private businesses better planners but carbon price could catch them out

14 May 2012

According to PwC's Private Business Barometer, released today, nearly two thirds of private businesses (64%) believe the introduction of the carbon pricing mechanism will impact their business.

The two areas of business, they believe will be primarily impacted is cost of transport (42%) and products and services (22%).

There are still one third of businesses who don't believe or understand how the carbon pricing mechanism will impact them.

PwC Private Clients National Managing Partner David Wills says, “These businesses are at risk of being hit by higher costs.”

“It's unlikely either to expect suppliers or vendors to be seen more favourably for taking action to reduce their carbon foot print. But to plan any action you must first understand the impact.”

The PwC Private Business Barometer is an annual survey of more than 1000 private businesses, across Australia, with an annual turnover of between $10 and $100 million.

Performance

“Private businesses are resilient and remain cautiously optimistic for the future,” says Mr Wills.

Six out of 10 private businesses exceeded or met growth targets over the past 12 months. Of those, half (54%) credited having a strategic plan as the reason for their success.

According to the survey 96 per cent of businesses have a business plan, as compared to 60 per cent five years ago.

One in five businesses surveyed, review their business plans continuously, with close to 3 in 10 doing so to ensure growth and longevity.

Growth

Looking to the next 12 months, private businesses are forecasting sales and profit growth of 14 and 18 per cent respectively.

For around half (58%), of the businesses surveyed the key to growth in the short term is organic. And for six out of 10 (62%) businesses, this will continue to drive growth in the medium term too.

Growth may be more challenging for some, with five out of 10 businesses reporting an increase in sales.

“Increased sales suggest a focus on volume rather than price. This is not sustainable. Businesses need to shift the focus from cost cutting to maximising their return on sales and marketing, invest in innovation, technology and new products.”

Smart Business DNA

Results from the PwC Barometer show there are characteristics within the DNA of “smart businesses” that will position them to better take advantage when the economy turns.

Mr Wills says, “Economies are cyclical, so it's inevitable. The unknown is when.”

Some of the characteristics in smart business’ DNA include:
  1. Effective use of customer relationship management systems (CRM) – these help enforce discipline and accountability, and help grow the top line.
  2. Understanding people are one of a business’ key differentiators in the market and invest in people by continuing to build on initiatives such as flexible working hours, parental leave and employee share schemes.
  3. Hold rather than further cut costs but offer value by bundling products, having added extras like additional service or products, or intangible benefits such as guaranteed service levels or money back guarantees.
“These characteristics also help drive strong growth in the lead up to the change. It's a win win situation.”

Funding

According to the PwC Barometer two thirds (65%) of businesses reported no difficulties accessing funding. By contrast only one third of businesses (34%) are planning major investments in the next 12 to 24 months.

Instead, businesses are focussed on paying down debt. Debt levels are low at 22 per cent, but according to Mr Wills that doesn't mean there is a war chest of money for acquisitions and expansion.

“It does mean private businesses are less reliant on banks. But for those looking to banks for funds the criteria remains strict and lenders are stressing the need for their customers to manage working capital. Poor management won't win you funding.”

People

Six out of 10 private businesses (60%) are looking to hire but according to the PwC Barometer finding and retaining the “right” people remains a key challenge. In fact, just under half of the businesses surveyed (42%) said finding the right staff is their biggest challenge.

Mr Wills says, “We are seeing a short term approach to people and a downward trend in strategies and initiatives to improve employee conditions. Economic conditions are also limiting private businesses ability to offer wage or salary increases.”

Business Operations

The three biggest challenges facing businesses are finding competent staff (28%), low margins and competitive pricing (17%) and funding the business and cash flow (12 %).

Mr Wills says, “We’re seeing a significant shift in the market, favouring price competition and the results reinforce that shift.”

One third of businesses reported that pricing is the number one driver of competition for new businesses.

About the PwC Private Clients Barometer

The PwC Private Business Barometer is a national, independent survey of more than 1000 Australian private businesses with an annual turnover of between AUD$10 and $100 million. It is released annually with research undertaken between February and March 2012.

The private businesses surveyed range across a variety of sectors including manufacturing, business services, retail, distribution and wholesale and property and construction. They are asked a series of questions on set topics including growth, performance, funding, people and operations as well as topical issues of the day.

About PwC

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