Australia’s private businesses are continuing to experience GFC-like growth rates, with PwC’s latest Business Barometer showing sales rose just 6% in the last 12 months, with profit up 7%.
However, the companies surveyed by PwC – all of which have revenue between $10 million and $100 million – are anticipating a brighter medium-term outlook, forecasting revenue growth of 17% and profit growth of 13% over the next 12 months.
PwC private clients partner Greg Will says bullish revenue growth target reflects improving economic conditions as well as focus from business owners and managers on increasing top-line growth.
“Businesses are now spending a lot more in terms of marketing advertising. They are looking for top-line growth and that’s because they’ve cut their costs so deeply.”
But the report suggests delivering that top-line growth is proving difficult in the current economic environment.
“There are not many levers any more that businesses can pull now,” Will says.
With most businesses having already stripped costs out of their business and with consumers still cautious and unwilling to spend, most businesses are being forced to erode margins by discounting, according to Will.
As a result, the PwC report found pricing has become the second biggest concern for business owners behind people matters.
Will says the reliance on discounting – which is also being driven by the fact that many businesses are currently carrying too much stock – is a worrying long-term trend.
“Discounting is a bit of race to the bottom. You can only pull those so many times before it becomes un-economic.”
“There is a big question as to whether those margins will ever come back because customers have grown so used to discounts.”
While prices are falling, some costs are rising.
Just under 60% of the businesses surveyed said they planned to hire in the next 12 months and competition for staff is expected to push wages up by about 6%.
However, Will says the re-emergence of the battle for talent is making employers more confident that they will be able to pluck a qualified worker from the market place – the proportion of respondents concerned about a lack of qualified staff fell from 52% to 42%.
Unsurprisingly, mixed economic conditions are making businesses nervous about making big plays for growth.
While 45% are planning new products, just 22% are looking to head overseas in the next 12 months and only 28% are anticipating making an acquisition.
The proportion of businesses planning capital investments in the next 12 months also remained low at 36%.
“It’s still not as high as it should be in terms of really boosting the economy,” Will says.
However, there has been a slight increase in the average debt-to-assets from 17% to 21% in the last six months does suggest companies are beginning to re-examine growth funding options.
Caution around business exits is still also strong.
The proportion of business owners looking to exit in the next two years has increased from 5% to 7% in the last six months, although the proportion of entrepreneurs considering a sale to private equity has almost doubled to 13%.
Will says that’s a function of private equity investors coming back in to the market as the economy improves.
“While there are not the transactions at this stage flowing through, there is a very solid pipeline.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
