Private businesses set to chase growth as cost-cutting options dry up

After cutting costs savagely throughout the downturn to maintain profitability, Australia’s private businesses are once again focusing on growth through acquisitions, new products and new markets, according to PricewaterhouseCoopers’ latest Business Barometer report.

The report, which involves a survey of more than 750 private businesses with revenue between $10 million and $100 million, shows private companies are positive about the year ahead, predicting sales growth of 13% and profit growth of 17% over the short-term.

Over the longer-term, the companies are even more bullish, with predictions of sales growth of 18% and profit growth of 25%.

But PwC partner Greg Will says the fact that profit growth projections have been higher than sales growth projections shows how hard companies have been focussing on keeping costs contained to ensure they came through the GFC in good shape.

In the last 12 months, while the company’s surveyed had sales growth of just 5%, profits continued to increase at an impressive 15%.

“The way that private businesses were able to work through the GFC was to cut costs. They just couldn’t get that organic growth,” Will says.

But with costs now cut “to the bone” he says companies need to start looking at ways to grow revenue again via new products, expansion into new markets and acquisitions.

“They’ve cut costs to the bone. Now it’s time to start getting innovative. They have now got to look outside their business,” Will says.

The survey shows the percentage of companies considering making an acquisition in the next 12 months has leapt from 6% to 27%.

Will says many companies had been hoping to pick up competitors at fire-sale prices during the downturn, but the willingness of banks to nurse struggling firms through the GFC has meant these big bargains never eventuated.

“So before things start getting significantly better they want to get in and get on the front foot in terms of finding other businesses to buy.”

The number of companies planning to launch new products jumped from 12% to 49%, while the number of companies set to expand into new markets increased from 9% to 37%.

Funding this growth doesn’t appear to be the issue it once was. Half said they had no real difficulties in getting capital, although more than 60% of respondents said they had no major plans to invest.

“I think private businesses have just accepted that funding is going to be difficult and it won’t go back to the halcyon days we saw two years ago,” Will says.

The challenge now is people, with half of respondents saying finding talent has again become a big problem, as 57% expect to increase staff numbers in the next 12 months. Not only will a lack of good people make it harder to chase growth, but respondents say the talent shortage will push up wages by about 7%.

“People are seen as one of the ways that they can make themselves competitive, get ahead of their competition and start to grow their business,” Will says.

The survey also suggests that the downturn might have forced many entrepreneurs to delay their plans to exit – more than 90% of business owners say they have no plans to move on in the next two years.