Business Growth
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 | We’ve taken the attitude that with the crisis going on, it’s a fantastic opportunity to get back to the fundamentals. We’ve just completely blown ourselves away with how much expense we’ve been able to take out of the business just by thinking smart, and that’s just really basic stuff. We’re taking the opportunity to circle back and focus on that while still growing, so that’s been a great opportunity that’s been brought about by this financial situation. Even 10 months ago, we had one foot on the accelerator and one foot on or near the brake. We were probably like many other businesses in wondering what was in front of us. We’ve got quite strong growth plans nationally and internationally, and we were being a little cautious, but eventually it got to the point of understanding that there was light at the end of the tunnel. We saw that the opportunity lay in keeping the foot on the accelerator and being ready just to charge out of this period. |
| I would now think the GFC is one of the best things that has happened to our business. The change in economic circumstances has led to a very positive change – we’re in a growth period now and that wouldn’t have happened as quickly if we hadn’t have been under pressure. We didn’t hunker down during the GFC and hope that we’d live through it, we used change as an opportunity to look at what we should really be doing and it’s been a very positive experience for us. We found that being able to quickly understand what the market is and diversify our offering was the reason that we performed well during the last 12 months. |
| I do think we’re an organisation that rapidly evolves and it’s very important that we do that. We are a franchisor and we have 150 pharmacies out there – it’s very important our thinking is a couple of years ahead of the market. I think it’s definitely the time for businesses to plan for growth. If the business has the capability to invest at this stage in the cycle, it is most definitely the time to go ahead. |
| | Click on graph to enlarge |
Aggregate growth stays strong
Results differ by state
More businesses hit targets than fail
Western Australia and Queensland not sheltered
Hit or miss in growth states
Accessing funding on acceptable terms tough
Performance drivers confusing
Sun breaks through as optimism grows
Availability of credit critical
Opportunities emerging in next 12 months
Progressive businesses preparing for upturn
Capital constraints hold back international expansion
Few planning to exit
Succession planning still lags
Private businesses in the A$10 million–A$100 million segment are growing more slowly than before the financial crisis. As ever, experiences vary across different states and industries but, importantly, aggregate growth in the private business sector remains strong. Businesses grew their sales by 6.8 per cent and their profits 5.8 per cent on average for the 12 months prior to August 2009. These growth rates are the lowest since the first Private Business Barometer was published, though they remain positive. Indeed, the rate of decline in average growth rates appears to have moderated during the past six months. | |  Table 2: Business growth experienced in the past 12 months |
Experiences vary considerably across state borders. In particular, Queensland and Western Australian businesses continue to outperform their peers in New South Wales and Victoria. Nationally, however, businesses are growing more slowly. Western Australian and Queensland businesses grew their average profits by 12.8 per cent and 12.7 per cent respectively. While healthy, these are a far cry from the 20 per cent profit growth that businesses in both states achieved for the 12 months to August 2008. Businesses in New South Wales and Victoria could only manage profit growth of 2.2 per cent and 4.7 per cent respectively, down from the 3.8 per cent and 8.5 per cent for the 12 months to August 2008. South Australian businesses grew at a rate between that of businesses in the growth states and those in New South Wales and Victoria. For the 12 months to August 2009, South Australian businesses grew profits by 7.6 per cent and sales by 9.1 per cent, reinforcing reports of recovering business confidence in the state. | |  Table 3: Profit growth experienced in the past 12 months – by state  Table 4: Sales growth experienced in the past 12 months – by state |
Nationally, more businesses exceeded or met their revenue targets than fell short. The number of businesses that exceeded set targets has fallen in the past six months, but relative to the last Private Business Barometer, more businesses met their targets. The share of businesses that failed to reach their targets rose slightly during the period, albeit at a slower pace than in the six months to March 2009. | |  Table 5: Success experienced in meeting set revenue targets in the past financial year |
As with previous Private Business Barometers, this sixth round found that businesses in Western Australia and Queensland exceeded set targets more frequently than their peers in New South Wales and Victoria. However, 54.4 per cent of Queensland and 31.8 per cent of Western Australian businesses undershot their set targets in the past financial year, indicating that these states were not fully sheltered from the economic downturn. In fact, Queensland now has a greater share of businesses which missed their targets than New South Wales and Victoria. The magnitude of these results becomes even clearer when the latest results are placed alongside those from past Private Business Barometers – for example, in August 2007 no businesses in Queensland or Western Australia had fallen short of their targets. | |  Table 6: Success experienced in meeting set revenue targets – by state |
Success in the growth states of Queensland and Western Australia is now remarkably polarised. Businesses in these states have either exceeded revenue targets or missed them altogether. Less than one out of 10 businesses in both states merely met their set targets during the past financial year. | | Figure 12: Share of businesses that undershot set revenue targets – by state |
As with well-performing businesses, a significant share (20.7 per cent) of businesses that missed their targets could not identify the key reason why. However, nearly half (43.2 per cent) of businesses that fell short nominated lack of funding on acceptable terms as the reason. This is deeply concerning to the private business community, as funds-starved businesses struggle to make the investments needed to grow strongly. This triggers a negative spiral as financiers are typically reluctant to provide funds to stagnant businesses. Breaking out of this cycle is difficult and dependent on businesses having a clear strategy and strong relationships with their financiers. | |  Table 8: Key reason for not meeting revenue targets |
Almost 40 per cent of businesses that met or exceeded set targets in the past year could not explain why. However, one-quarter of these well-performing businesses said the strong domestic economy was the main driver of growth. This shows the close link between the experience of private businesses and the performance of the wider economy. Ten per cent of businesses said their strategic direction had helped them reach or exceed targets, while 8.2 per cent cited export successes as boosting growth. | |  Table 7: Key reasons for meeting or exceeding revenue targets in the past financial year |
Although funding worries, margin pressures and lower growth have weighed down their outlook, many businesses believe that the storm clouds are slowly drifting away. General optimism among private businesses about their prospects has partly recovered from the lows reported earlier in 2009. Businesses are generally setting single-digit growth targets for the next 12 months, up slightly since March 2009. On average, they planned to grow sales by 6.6 per cent and profits by 7.3 per cent in the next year. In March, respondents aimed to improve sales by 5.9 per cent and profit by 6.6 per cent in the following 12 months. The three-year outlook is more positive, with businesses increasing their growth targets in the six months since March.
| |  Table 9: Set short-term and medium-term business growth targets Figure 13: Set short-term (one year) targets |
Businesses view the ability to secure funding as critical to growth. More than 80 per cent of respondents said availability of credit could prevent them meeting their targets during the next year. As banks continue to reprice debt, businesses are increasingly worried about the cost of funding. In this Private Business Barometer, 30.7 per cent of businesses said the cost of debt could hamper their ability to meet targets in the coming year. In addition, 18.9 per cent of private businesses identified global instability as a potential growth impediment in the next year, down from 21.1 per cent in March 2009. | |  Table 10: Potential impediments to meeting targets in the next year |
One-quarter of businesses believe they are unlikely to grow in the short term. However, this figure has improved since the last Private Business Barometer. An increasing share of business owners and leaders expect growth opportunities to emerge during the next year, with many of them feeling they will be able to boost their business on the back of the domestic economy. As a result, organic growth is the most popular one-year and three-year growth strategy. However, this is a slow way to achieve growth. To meet their targets, private businesses should be supplementing organic growth by exploiting external opportunities that will arise as the economy shifts into gear. | |  Table 11: Short-term (one-year) growth strategies considered |
Few businesses have started to actively prepare for the upturn, confirming the fact that many expect some challenges to remain for the next year. Among the one-fifth of businesses that are preparing for an upturn, the primary strategy is simply securing funding. Building a strategy for the upturn should be a top priority for businesses. By focusing too closely on the current environment, owners and decision-makers risk seeing competitors that have prepared for growth race past them as the economy shifts.
| |  Table 12: Medium-term (three-year) growth strategies considered  Table 13: Planning for the upturn |
A remarkable 84.4 per cent of businesses said capital constraints were holding back international expansion plans. One in every two businesses said market access issues were a barrier to expanding overseas. | |  Table 14: Main perceived challenges in expanding overseas |
Over 74 per cent of businesses have no plans to exit the business in the next two years, showing that the majority of businesses plan to work their way through the short and medium term. This figure has dropped from 78.8 per cent in the last Private Business Barometer, suggesting there has been a slight rise in the number of businesses up for sale. The most popular exit strategy is selling the business to family members, implying that some of the current owners may be looking to transition out of the business.
| |  Table 15: Business exit strategies considered in the next two years |
Two out of three private businesses still have no formal succession planning/handover/exit arrangements in place. This majority has gradually grown smaller with each Private Business Barometer, as businesses undertake more formal planning and, more recently, as some businesses evaluate their exit strategies. | |  Table 16: Formal succession planning/handover/exit arrangements instituted |