The profit motive

I’m not sure whether they meant it, but two of Australia’s key SME lobby groups have started the year off with very similar messages about the profitability of small business going into 2012.

The Australian Chamber of Commerce and Industry have declared 2012 “a year when you need businesses to make profits” for their own sake and the sake of the economy, which of course is heavily reliant on taxes on company profits.

“2012 needs to be a year when making profits is greeted with a sigh of relief, not a dirty word. Making a profit and protecting the business bottom-line will need to be the catch-cry in 2012,” ACCI chief said in a New Year’s Eve media statement.

“The community needs to see businesses making profits, especially small business, as the key to job security, not government handouts or new regulation.”

This weekend, the Australian Retailers Association took up the profitability mantra.

“At the end of the day a business needs to make money before it pays tax,” executive director Russell Zimmerman said.

“To make money it is vital for consumers to have money in their pockets to spend.”

Now, both organisations were using the “profit” point to support different arguments – the ACCI wants the Government to reign in the unions through its Fair Work review and reduce business costs, while the ARA is worried about the potential for new state and Federal Government taxes and excises, which it says would hurt consumers.

But nevertheless, the lobby groups are right – in 2012, managing profitability is going to need to be a big focus for entrepreneurs.

Today Alan Kohler explains why he thinks 2012 will be a grind. As the world (governments, households and to a lesser extent corporations) continue to reduce their debt levels, growth will inevitably remained constrained.

Many companies – particularly those in sectors such as retail, wholesale and construction – are going to find that growing revenue continues to be a real challenge.

That will make managing profitability crucial. While protecting margins by cutting costs and using smart pricing strategies is always important, this year it will be essential. Expect entrepreneurs to look hard at how and when they discount and what, how and why they outsource.

My sense is that growth for growth’s sake won’t happen, even in younger SMEs where this has been the norm. Profitable, carefully managed growth is the top priority for 2012.

We saw smart SMEs adapting to this new focus in 2011 in our Smart50 list, where there was a clear trend towards companies using flexible growth models where initiatives or projects could be scaled up or down quickly, according to changing market conditions.

Having the power to do this in your business will be a huge advantage in 2012. Stay agile, stay ready, stay profitable.