Private businesses predict profit increase of 18% next year: PwC

Australia’s private businesses are continuing to experience slow growth rates, with sales growing by just 6% and profits by 7% in the last 12 months, according to PwC’s Business Barometer published today.

The sales and profits results were exactly the same as last year but the businesses included in the barometer survey are more optimistic, predicting sales growth of 14% and profits of 18% over the next 12 months.

The annual survey of more than 1,000 private businesses across Australia with annual turnovers of between $10 million and $100 million found that, for half of the businesses surveyed, the key to growth in the short term is organic.

For six out of 10 businesses, this will continue to drive growth in the medium term too.

Growth may be more challenging for some, with five out of 10 businesses reporting an increase in sales.

PwC Private Clients partner Gregory Will told SmartCompany increased sales suggest a focus on volume rather than price, which is unsustainable.

“While more than half of the respondents said that sales increased compared to last year, they looked at volume but cut price or cut margin to get those sales,” says Will.

“The profitability on those sales stayed the same or decreased, they really sacrificed margin in a tough economy.

“You can only cut your price or margin by so much until you actually get to what it is costing to buy it.

“I believe they are getting down to a point where they are very close to that point.”

The barometer also found that nearly two-thirds of private businesses surveyed believe the introduction of the carbon pricing mechanism will impact their business.

The two areas of business they believe will be primarily impacted are cost of transport, which 42% believe will be affected, and products and services, which 22% believe will also change.

However, one-third of businesses still don’t believe the carbon pricing mechanism will impact them or understand how it works.

Will says these businesses are at risk of being hit by higher costs and that many businesses “just don’t understand” how the carbon tax will impact their business.

“A lot of things we are hearing is that it will be the indirect cost,” says Will.

“A number of organisations, including the top 500 emitters, are looking to drop their overall carbon footprint, so all suppliers they deal with have to show how they will drop their carbon footprint as well.

“I think at the moment [businesses] have not thought about how it will impact their profit forecast; but I think it will.”

The survey found that six out of 10 private businesses exceeded or met growth targets over the past 12 months. Of those, half credited having a strategic plan as the reason for their success.

According to the survey 96% of businesses have a business plan, as compared to 60% five years ago.

One in five businesses surveyed, review their business plans continuously, with close to 3 in 10 doing so to ensure growth and longevity.

“There’s not much to thank the GFC for, but without it businesses would still potentially be poor planners,” says Will.

The survey found the three biggest challenges facing businesses are finding competent staff, which was a challenge for 28% of those surveyed, low margins and competitive pricing and funding the business and cash flow.

“Finding, retaining, rewarding and attracting key people is still the main issue for private businesses,” says Will.

“Private businesses just can’t find competent staff at the moment.

“A lot of the competent people are just remaining in their roles because of the uncertainty, so they are not going out onto the market.”