Executive Summary



Returning optimism presents opportunities for growth

The PricewaterhouseCoopers Private Business Barometer reveals that the private business community is still growing strongly despite the global financial crisis and economic instability.

While businesses grew at the slowest pace since the first Private Business Barometer in February 2007, sales still climbed by an average of 6.8 per cent and profits rose by 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.

Businesses in Western Australia and Queensland grew their profits by an average of 12.8 per cent and 12.7 per cent respectively, while their counterparts in New South Wales and Victoria climbed 2.2 per cent and 4.7 per cent respectively.

Nearly 40 per cent of businesses that met or exceeded set targets in the past financial year could not explain why. Another quarter said a strong domestic economy was the key driver of growth.

General optimism but limited planning

Respondents are generally more optimistic about 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.

In March 2009, businesses had aimed to improve sales by 5.9 per cent and profit by 6.6 per cent in the following 12 months.

Respondents also raised their three-year growth targets from those set in March 2009.

While one-quarter of respondents are not anticipating growth in the next 12 months, more businesses expect opportunities to emerge in the short term.

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

Despite an emerging belief that the worst may be over, few businesses are actively preparing for an upturn. The one-fifth of businesses doing so are primarily gearing up their balance sheets.

Funding peak concern for businesses

Almost every owner said funding was a challenge. Respondents favoured internally generated funding and existing shareholders as their primary sources of finance, while banks regained favour despite repricing loans and applying tougher credit criteria.

Lenders reviewed the debt facility of more than 61 per cent of businesses during the past six months, while 45.4 per cent of respondents had their loans repriced.

Half of businesses said banks had been stricter in enforcing debt contract covenants, while 29.3 per cent said their lender had demanded they put up additional security to back up existing debt.

Just over 87 per cent of private businesses reported CAPEX constraints, up from 71.8 per cent one year ago. More than half were restricted by the price and availability of debt.

Thirty-nine per cent of respondents said the cost of debt was their main difficulty in raising capital. A further 23.9 per cent said availability of credit was their biggest capital-raising challenge.

Close to half (43.2 per cent) of businesses said they missed their targets because of a lack of serviceable funding. However, the 20.7 per cent that undershot their targets admitted they were unclear about the key reason why.

More than 81 per cent of businesses said difficulties in accessing credit could stop them meeting their targets during the next year. Nearly one-third (30.7 per cent) said the cost of debt could also cripple their chances of meeting their immediate targets.

Businesses are also carrying less debt relative to the value of their assets. The average debt ratio has fallen from 41.3 per cent in February 2007 to 31.2 per cent in August and September 2009.

Wages concern replaces war for talent

Only 15.3 per cent of businesses have firm plans to hire additional employees, down from 46.1 per cent in August 2007. More than a third had made staff redundant in the
past 12 months.

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

Respondents do not rate becoming an ‘employer of choice’ as a current priority. More than two-thirds do not plan to change employment conditions to be viewed as a competitive employer. Only 38 per cent of businesses reported the same two years ago.

Fifty-three per cent of businesses identified high wage costs as their top hiring constraint, while 22 per cent nominated the removal of Work Choices as their
main hiring impediment.

Formal business plans driven by lenders

Three-quarters of private businesses have a formal business plan. However, they are largely motivated by lenders’ insistence that borrowers attach a plan to their loan application.

The number of respondents with a formal business plan has increased in every edition of the Private Business Barometer. However, while 75 per cent of businesses with a formal plan currently in place said they created the plan in response to a credit application, only 15.9 per cent did so because it made good business sense.

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.

However, sales revenues from Queensland and Western Australia have now grown to 26.6 per cent of the total.

Businesses now rate pricing and margin compression as their key competitive issues. The share of businesses ranking pricing as a driver of competition has doubled over
the past year.

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 this rise and businesses’ greater adoption of formal business plans, two out of three private businesses still have no formal succession, handover or exit arrangements.

Regardless of the rapid growth in social networking, only 36.1 per cent of responding private businesses have plugged into these online communities.

Almost half of private businesses are not members of any major business association, showing that their participation in more traditional forms of networking is relatively low key as well.