Private businesses tip 18% profit growth in next 12 months, prepared to pay up to keep skilled staff

Small businesses have a strong year ahead of them with predictions of higher profitability and performance, but are also prepared to hand out pay rises to keep top-tier staff from leaving, two new research reports have found.

While a new PwC report into private businesses worth over $10 million has found the majority are expected to enjoy higher profitability over the next year, a separate Grant Thornton Study has found these cashed-up SMEs are still struggling for talent.

“Small businesses still have to recognise the reality of keeping quality people,” says Grant Thornton partner, privately held business, Bill Shew.

“These pay rises are just a reflection of where the market is right now, and it’s been like that ever since the downturn, really.”

The PwC report, which surveyed 1,000 businesses earning between $10-100 million, found that 57% exceeded or met their revenue targets over the past year, and earlier this year tipped 13% growth in sales, and 17% growth in profits. Those expectations are now at 14% and 18% respectively. 

PwC points out that even if those targets are undershot by 7-8%, “this still bodes well for good performance”. Businesses have also targeted a short-term profit boost of 18%, up from the May edition of the report.

Over the next three years, the medium-term outlook is for business to grow by 25%. But the survey also points out evidence of a critical skills shortage – 57% of businesses say they intend to hire new staff, and 93% say they expect wage costs to rise over the next year as well.

That gels with the new Grant Thornton International Business Report, which found that 83% of privately held Australian businesses expect to offer pay rises in the next year, and that out of those, 14% say they will give a pay rise above inflation.

Bill Shew says the two reports show that while the economy is still performing well in many sectors, others are losing plenty of staff to higher paying boom industries, including the resources sector.

“We’re almost at a full employment economy. While businesses are doing well, the pressure is on to find qualified people who are capable of taking the business forward.”

“When businesses set these growth targets, the struggle is always going to be making sure they have enough people to support it.”

That struggle is clearly set out in the PwC report, which found that more businesses are spending more time on training up existing staff. Eight out of 10 private businesses said they were doing specific on-the-job training, while 50% are mentoring, along with 21% which are having staff work in other parts of the business.

Shew says this could actually be a bigger problem if businesses leave it unresolved. Growth can fall away if the staff count isn’t big enough, and he warns that this is happening across all industries, not just in specific sectors.

“Anecdotally, we hear from our clients that this is happening across all industries and in a number of sectors, right across the board,” he says.

Shew warns SMEs to start thinking about how they can manage that growth and motivate their staff without giving up their productivity and profit goals.

“There are good quality people in these businesses, but the main problem is just finding them. But there is that optimism, so businesses just have to keep moving forward.”