Executive summary

This edition of the PwC Private Business Barometer shows signs of recovery and increased activity amongst Australian private businesses.

Private businesses are moving away from self-funding their investments and have a renewed appetite for borrowing from banks. Their average debt as a percentage of assets climbed from 17 per cent to 21 per cent since the last survey, arresting a steady decline during the global financial crisis (GFC).

However, these signs were relatively tentative and businesses remained cautiously optimistic over the near-term economic outlook.

Near-term uncertainty, medium-term optimism

Private businesses estimated their sales grew by an average of six per cent and profit by seven per cent over the previous 12 months. These low growth rates were similar to those experienced during the height of the GFC and economic downturn.

In addition, businesses remained concerned about the sales and profit outlook for the next 12 months. This caution was reflected in their approach to investment, with only 36 per cent planning significant investments in the coming year.

Private businesses were more optimistic about the medium-term outlook and told us they had plans to grow and pursue acquisitions in the next three years.

Pricing and funding are growing concerns

As in previous surveys, private businesses’ top concern was finding competent staff. Their second greatest challenge was competitive pricing and its effect on margins. The share of businesses that named pricing as a challenge rose from 16 per cent in the October 2010 PwC Private Business Barometer to 38 per cent in this edition. Across most industries, companies also rated pricing as a key factor in winning new business.

Hiring could get harder

Some aspects of this survey suggest recruiting talented staff will get harder for many companies.

Fewer businesses (42 per cent – down from 52 per cent in the October 2010 PwC Private Business Barometer) said a lack of qualified candidates was holding them back from hiring. Only one-third (35 per cent) of businesses did not plan to hire in the next six months. Furthermore, four in five businesses (83 per cent) said they expected wage costs to increase over the next year, predicting an average increase of six per cent.

Despite these indications that competition for staff would increase, the share of businesses planning to make changes so they were considered more appealing as employers fell from 82 per cent to 71 per cent.

This PwC Private Business Barometer also reveals that businesses have been reviewing business plans more frequently – 54 per cent reviewed them more than once a year, compared to just 12 per cent doing so in March 2010.

Retail weakening

The retail sector had weaker than expected sales over the 2010 Christmas period – only 36 per cent of retailers met their sales expectations. According to Roy Morgan Research, consumer confidence leading up to Christmas declined as many people were concerned about their personal finances.

Despite more consumers buying goods and services online, a surprising 39 per cent of businesses had no plans to increase their e-retail efforts. Only six per cent of retailers surveyed said they already had an established online retail strategy.

Businesses pitch in for disaster relief

This survey examines the impact of the natural disasters in Queensland at the start of 2011 and how willing Australian businesses are to pitch in and help others during times of adversity.

Half (51 per cent) of respondents outside Queensland said their businesses felt some impact from the natural disasters. One in five (22 per cent) experienced lower demand for their products or services, while 10 per cent experienced higher demand.

Four in ten (39 per cent) private businesses outside Queensland supported the Federal Government levy to help rebuild infrastructure in flood-affected areas. Other respondents said rebuilding should be financed from existing government resources or taxpayer funds.

Over half (59 per cent) of the private businesses surveyed told us they had supported the relief effort by making donations or volunteering. In addition, 18 per cent responded by showing commercial flexibility and nine per cent offered wellbeing support for affected people.

PwC Perspective