Small business profits hit by global downturn

Australian small businesses are struggling under global economic pressures, with almost a third suffering a profit loss over the past year, a recent survey indicates.

Higher interest rates, the strength of the Australian dollar, wage increases and a major skills shortage are to blame for restricting the growth of small firms, states Australian Industry Group and Deloitte Private’s survey, ‘ Growth Strategies for Business’.

Manufacturing, services and construction companies were the sectors worst affected overall, though 80% of all companies surveyed reported that a shortage of skilled workers was to blame for restricting industry growth.

These sectors identified that external help was necessary to improve conditions across the board. Construction companies said that strategic planning is the priority to improve future growth whereas manufacturing businesses rated process improvements as the most important factor.

Businesses in the service sector indentified talent management and human resources as areas that need the most external assistance. Overall, small businesses said that strategic planning is an area that needs the most external assistance.

The survey indicates that most businesses will use retained earnings to finance themselves over the next two years, as borrowing costs are expected to rise in the near future.

National leader of Deloitte Private, David Murray, says businesses can sustain their profit growth by appropriately managing their cashflow and having credit available to help finance growth plans, where available. However, in the current economic climate finance availability has often been limited.

“Winning companies will be those who focus on innovative ways to develop and retain their best people, focus on their profitable clients and increase their market share by merger opportunities or organic growth,” says Murray.

The report also identifies actions that governments can take to improve conditions for small businesses and increase growth in the future. Australian Industry Group chief executive Heather Ridout says governments can assist the growth of companies by reducing red tape, encouraging innovation, reducing company tax by reforming the taxation system and coordinating the provision of infrastructure.

“By taking action in these areas, governments can lift the productivity of Australian businesses and assist in countering the structural pressures that many businesses are facing as a result of the mining boom,” says Ridout.