PWC Private Business Barometer


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Sales expected to increase by 13% in 2011.

62% of companies met or exceeded their set revenue targets in 2010.

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PWC Private Business Barometer

  1. 1. Can changing the way you think, change the way you grow?Private ClientsPrivate Business BarometerMay 2011Edition 09Listening to Australia’sprivate businesses What would you like to grow?
  2. 2. How can you kick start every day success? Carolyn Creswell founded Carman’s Fine Foods as an eighteen year old uni student with just $1000. Today, with the help from our Private Clients team, Carman’s is now a multi-million dollar business. Carolyn has grown the business by working with her Private Clients advisor to broaden Carman’s product offering, spread the customer base and number of suppliers and improve business systems. Carolyn uses us as a sounding board and as support for many of her decisions, both business and personal. With a growing international business built on muesli, it’s clearly a mix that works. What would you like to grow? Tell us at
  3. 3. Contents04Introduction 06 Highlights 08 Executive 10 Methodology summary and sample11Private 14 Impacts of the 18 Economist’s 20 Keeping upbusiness trends natural disasters overview with growth23Business growth 44 Market overview 46 People 56 Funding64Business 80 Business 84 PwC Private Clients 86 Acknowledgementsoperations demographics 3
  4. 4. This PwC Private Business Barometer shows 94 per cent of businesses have a plan that is closely aligned to their growth strategy and more than half of them review this plan more than once a year. David Wills National Managing Partner, Private Clients Welcome to the ninth After consulting with our clients and Perhaps in response to this, overall we found colleagues, we decided it would be best to that businesses are cautious about the next edition of the PwC Private get the opinions of Queensland businesses 12 months but still optimistic about the next Business Barometer. using other methods including roundtable three years. sessions and online polling at existing 2011 heralded an extraordinary time in The underlying message though, is that events. We connected with business owners world and local events. Many parts of businesses are reinvesting to prepare in Queensland on a personal level, holding Australia experienced unprecedented natural themselves for long-term growth. Sales are sessions with a range of business owners to disasters including flooding, bushfires and growing faster than profits which typically capture their feelings and response to the cyclones. New Zealand and Japan were indicates that people are investing profits flooding and their plans for the future. ravaged by earthquakes and the rest of the back into their business to help generate world is still reeling from the impact. Nationally, more than half of the businesses sales and create efficiencies for growth. surveyed reported having been impacted by Businesses are on the hunt for financing. At the time the flooding hit Queensland, the natural disasters earlier this year. We During the global financial crisis we saw we were preparing to go into the field to have spoken to many Queensland private business owners looking internally for interview private business owners for the business owners, and at one particular funding but banks have now re-emerged as ninth edition of the PwC Private Business breakfast event where we had almost 100 a popular source of finance for investments. Barometer. We knew that the focus for Queensland business owners in attendance, We’ve also seen a shift in the attitude Queenslanders was on helping each other 53 per cent told us they experienced of banks towards businesses. Banks are with the clean up effort and assessing no significant impact while 26 per cent showing more understanding about the and working through the impact experienced significant disruption. needs of private businesses and want to on their businesses. support them.4
  5. 5. IntroductionHowever, they are not loosening the purse aligned to their growth strategy. More than In the retail sector, e-retailing is growingstrings – so businesses need to clearly 50 per cent of businesses review it regularly – at 10 per cent per annum – howeverarticulate and demonstrate their case. more than once a year. 39 per cent of respondents told us they had no online retail plans. This area ofWe again asked, “What would you like to In this edition of the PwC Private Business the market presents a real opportunity forgrow?” and “Sales and profits” was the most Barometer, businesses again highlighted businesses and we believe it should formcommon answer. This tells us business owners their concerns in the area of attracting and part of a strong future growth strategy.are squarely focused on the future direction retaining talent. More than half of businessesand success of their businesses. indicated they intended to hire in the next The PwC Private Business Barometer is just six months and 42 per cent reported a lack of one of the ways PwC Private Clients supportsIn this edition, we had the pleasure of speaking qualified staff as a hiring restraint. the health and vitality of Australia’s privateto a private business owner who is on a business community. We hope you findphenomenal growth journey. Abigail Forsyth, We spoke to Sue Jackson, Managing this to be an insightful and useful tool forCEO of KeepCup, created a unique product that Director of Solterbeck, a private business benchmarking your current performancehas changed the landscape of coffee drinking which delivers motivating programs, and outlook for the less than two years – and experienced year- conferences and events to engage workforces.on-year growth of 300 per cent. Interestingly, when we talked to Sue about If you would like to talk to me about your how Solterbeck finds qualified talent, she business or the findings discussed in thisOne of the interesting points for me has been said, the company looks for the right fit and publication, I would love to hear from you.the shift in how business strategies are being then provides training and development.used over the lifetime of the PwC Private David Wills “We tend to hire on how staff engage withBusiness Barometer. In 2007 the majority National Managing Partner our vision, their attitude, and whether theyof businesses didn’t have a plan and if they have a complimentary skill set – and then Private Clientsdid, it was to satisfy lenders. Today’s PwC train people in our expertise of performance (61 3) 8603 3183Private Business Barometer shows 94 per improvement,” she explained. of businesses have a plan that is closely For the first time, we spoke in depth to a private business owner who is on a phenomenal growth journey. 5
  6. 6. Highlights Targeting new regions Private businesses are planning to expand domestically and internationally to complement organic growth. Investment to spark sales 46% are looking to domestic As growth returns, businesses are investing in functions such as marketing to stimulate sales. or international markets. Online retailing crucial Many retail businesses appeared not to recognise the need to invest in online retailing to remain competitive.6
  7. 7. HighlightsHiring plans are up and soare wages 21% favour the banks Over half of the businesses surveyed plan to take on new people in the next six months; almost all expect wages to increase in the coming year. Banks are back Businesses are again looking to the banks for funds to fuel their growth. Short term sales targets are at 13%Cautious optimismPrivate businesses remain cautious about the short termbut are more optimistic about the three-year view. 7
  8. 8. Executive summary This edition of the PwC Private Business Barometer shows signs of recovery and increased activity amongst Australian private businesses. Private businesses are moving away from self-funding their Hiring could get harder investments and have a renewed appetite for borrowing from Some aspects of this survey suggest recruiting talented banks. Their average debt as a percentage of assets climbed from staff will get harder for many companies. 17 per cent to 21 per cent since the last survey, arresting a steady decline during the global financial crisis (GFC). Fewer businesses (42 per cent – down from 52 per cent in the October 2010 PwC Private Business Barometer) said a lack of However, these signs were relatively tentative and qualified candidates was holding them back from hiring. Only businesses remained cautiously optimistic over the one-third (35 per cent) of businesses did not plan to hire in the next near-term economic outlook. six months. Furthermore, four in five businesses (83 per cent) said Near-term uncertainty, medium-term optimism they expected wage costs to increase over the next year, predicting an average increase of six per cent. Private businesses estimated their sales grew by an average of six per cent and profit by seven per cent over the previous 12 months. Despite these indications that competition for staff would increase, the These low growth rates were similar to those experienced during share of businesses planning to make changes so they were considered the height of the GFC and economic downturn. more appealing as employers fell from 82 per cent to 71 per cent. In addition, businesses remained concerned about the sales and This PwC Private Business Barometer also reveals that businesses profit outlook for the next 12 months. This caution was reflected have been reviewing business plans more frequently – 54 per cent in their approach to investment, with only 36 per cent planning reviewed them more than once a year, compared to just 12 per cent significant investments in the coming year. doing so in March 2010. Private businesses were more optimistic about the medium-term Retail weakening outlook and told us they had plans to grow and pursue acquisitions The retail sector had weaker than expected sales over the 2010 in the next three years. Christmas period – only 36 per cent of retailers met their sales Pricing and funding are growing concerns expectations. According to Roy Morgan Research, consumer confidence leading up to Christmas declined as many people As in previous surveys, private businesses’ top concern was finding .were concerned about their personal finances.1 competent staff. Their second greatest challenge was competitive pricing and its effect on margins. The share of businesses that Despite more consumers buying goods and services online, named pricing as a challenge rose from 16 per cent in the October a surprising 39 per cent of businesses had no plans to increase 2010 PwC Private Business Barometer to 38 per cent in this edition. their e-retail efforts. Only six per cent of retailers surveyed said Across most industries, companies also rated pricing as a key factor they already had an established online retail strategy. in winning new business. 1 The Roy Morgan Research Consumer Confidence Rating in December 2010 was 120.4 down from 130.1 in October 2010.8
  9. 9. Executive summaryBusinesses pitch in for disaster reliefThis survey examines the impact of the natural disasters inQueensland at the start of 2011 and how willing Australianbusinesses are to pitch in and help others during times of adversity.Half (51 per cent) of respondents outside Queensland said theirbusinesses felt some impact from the natural disasters. One infive (22 per cent) experienced lower demand for their productsor services, while 10 per cent experienced higher demand.Four in ten (39 per cent) private businesses outside Queenslandsupported the Federal Government levy to help rebuild infrastructurein flood-affected areas. Other respondents said rebuilding should befinanced from existing government resources or taxpayer funds.Over half (59 per cent) of the private businesses surveyed toldus they had supported the relief effort by making donations orvolunteering. In addition, 18 per cent responded by showingcommercial flexibility and nine per cent offered wellbeingsupport for affected people.Natural disasters in Queensland – respondents outside Queensland felt some impact experienced lower demand experienced higher demand 51% 22% 10% 9
  10. 10. Methodology and sample The PwC Private Business Barometer is prepared once every Table 1: Distribution of businesses by industry sector six months based on detailed questioning of a large sample of Australian-owned private businesses with revenues between % of businesses approximately A$10 million to A$100 million per year. Mar-10 Sep-10 Mar-11 To compile this edition of the PwC Private Business Barometer, Manufacturing 14 20 21 Roy Morgan Research completed telephone and online interviews Property and construction 16 17 12 with 851 businesses during February and March 2011. The market researchers interviewed the owner, chief executive officer or senior Retail trade 14 15 14 director of each business surveyed. Distribution and wholesale trade 12 11 15 Fieldwork for the May 2011 PwC Private Business Barometer Business services 18 10 10 began immediately after natural disasters had devastated Communications, transport Queensland and other parts of Australia. After consultation with 8 8 9 and storage clients and colleagues, PwC elected not to survey Queensland Agriculture, forestry and fishing 5 5 5 businesses in the formal fieldwork commissioned for this edition of the PwC Private Business Barometer, allowing businesses to Finance and insurance 3 3 3 focus on recovering and rebuilding. Other 10 10 11 The PwC Private Business Barometer questionnaire includes Total 100 100 100 set questions that do not change from one survey to the next, Base: Total businesses (n=851) and topical questions designed to obtain the private business community’s views on issues of the moment. Tables in this report may not total 100 per cent due to rounding. Figure 1: Geographic distribution of businesses More than half (52 per cent) of respondents in this survey were % of businesses business owners; 73 per cent were one of several owners of their business. As the table below shows, the sample includes strong coverage 24 NSW of the major industries. Twenty-one per cent of respondents were 9 Vic in the manufacturing industry, 15 per cent in distribution and wholesale trade, 14 per cent in retail and 12 per cent in property 12 40 WA and construction. SA ACT 33 Tas/NT Base: Total businesses (n=851)10
  11. 11. Private business trendsSales and profit growth rates down Pricing dominatesPrivate businesses’ average profit and sales growth rates fell Private businesses continued to find pricing the main factor in winningto levels last seen during the global financial crisis, against a new business, albeit less so than a year ago. Customer expectationsbackdrop of continued economic uncertainty. and demands also rose and margin compression re-emerged as a factor, after all but disappearing in the past two PwC Private BusinessFigure 2: Business growth in the past 12 months Barometer surveys. This may indicate businesses are vigorously discounting their products and services to secure new customers. 20 18 Figure 3: Main drivers of competition for new business 16Percentage growth rate All industries 14 12 10 50 8 6 40 4 % of businesses 2 30 0 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 20 Sales ProfitsBase: Total businesses (n=851) 10 0 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 Pricing Product innovation Entry of offshore firms Availability of HR talent Customer expectations and demands Margin compression Base: Total businesses (n=851) Sales and profit growth down to global financial crisis levels 11
  12. 12. Private business trends Setting cautious targets Geographic and product expansion complements Private businesses remain optimistic about medium-term sales organic growth growth targets and are taking a slightly more conservative approach Private businesses plan to expand into new product and geographic to setting medium-term profit growth targets. However, businesses markets and grow organically to meet their medium-term targets. are setting cautious short-term targets. This is most likely due to The fact that businesses are seeking funding from banks may uncertainty over domestic and international economic conditions indicate they are already laying the groundwork to diversify into and their impact on demand. new markets. Figure 4: Set short- and medium-term business growth targets Figure 5: Medium-term (three-year) growth strategies considered 70 30 60 25 Percentage growth target 50 % of businesses 20 40 15 30 10 20 10 5 0 0 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 Organic growth Expansion into new product markets Short-term sales Short-term profits Expansion into new geographic markets Acquisition of other businesses Long-term sales Long-term profits Do not see any real growth happening Base: Businesses (n=851) Base: Total businesses (n=851) Multiple response12
  13. 13. Private business trendsBusinesses take on more debt Sticking to the planPrivate businesses are starting to reverse the long-standing decline Private businesses are reviewing their plans more their borrowings as a percentage of their assets. Owners and The share of respondents who reviewed their business planssenior executives are becoming more likely to approach banks and more than once a year increased slightly since the last survey,other external finance providers for loans to fund expansion. while the percentage of those who only dusted off their business plans every year or two continued to fall.Figure 6: Average debt ratio Figure 7: Business planning frequency 80 50 70 40 60 % of businesses 50Debt ratio (%) 30 40 20 30 20 10 10 0 0 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Sep 10 Mar 11 More than once yearly Every year Every two years or more Total borrowings to total assets ratio Base: Total businesses (n=851)Base: Businesses that knew their debt ratio (n=584) 13
  14. 14. Impacts of the natural disasters Surveys for this issue of the PwC Private Business Barometer started Businesses concerned about financial position soon after flooding and Cyclone Yasi devastated Queensland and One fifth (19 per cent) of private business owners or managers who other parts of Australia. We asked respondents from other states did not support the levy were concerned about their own financial and territories a range of questions to measure the impact of these situation. A similar percentage (18 per cent) believed there were disasters on private businesses outside Queensland. already sufficient funds available from tax revenue and government Private businesses split on levy reserves to help affected communities. Thirty-nine per cent of private businesses agreed with the then- proposed Federal Government levy to help rebuild flood-affected Figure 9: Reasons given for not supporting the flood levy infrastructure. Fifty per cent of private businesses did not support the levy and 11 per cent were not sure. Struggling financially or cannot afford to pay 19 Enough revenue is collected already in tax; there is enough in reserve 18 Many people have already donated; contributing should be voluntary 14 Figure 8: Support for Federal Government flood levy There is too much waste in the budget 12 % of businesses Cuts should be made to other areas of the budget 11 Cannot say A disaster fund should be in place 9 11 People should insure themselves and their property adequately 7 The state governments should have insurance for such events; they should pay 6 39 Support levy People will be discouraged from donating/ 5 it is not fair we are being levied as well It sets a precedent or will promote a bail-out mentality 4 Do not 50 I/we have received no assistance 4 for similar events support levy Governments should borrow or stay in deficit longer to pay for it 3 There are alternative ways of raising the money 3 Base: Total businesses (n=851) The levy will not be removed; 2 once applied it will stay There should be better regulation of the insurance industry 2 The money will not go to those that need it 1 It will push up costs of living, food, electricity etc. 1 Flood-prone areas should not be developed or built up 1 Every income level should be levied; it penalises medium and high income earners 1 Other 8 Dont know 3 0 10 20 % of businesses Base: Total businesses that would not support a levy (n=423)14
  15. 15. Impacts of the natural disastersHalf of non-Queensland businesses feel impact Many Australian private businesses pitched in to help those affected by natural disasters. Over half of respondents (59 per cent)Half (51 per cent) of Australian private businesses outside supported those impacted by donating or volunteering. EighteenQueensland felt the impact of the natural disasters. Twenty-two per cent of businesses responded by showing commercial flexibilityper cent experienced a decrease in demand for their products or and nine per cent offered wellbeing support. Only a quarter ofservices and 15 per cent said their supply chain had been affected. businesses provided no support to those impacted.On the other hand, 10 per cent experienced an increase in demandfor their products or services. Figure 11: Support for those impactedWhile we did not interview Queensland-based private businessesfor the May 2011 PwC Private Business Barometer, we measuredthe impact of the natural disasters and the sentiment of Donations and/or volunteering 59Queensland businesses through surveys, events, roundtable Commercial flexibility 21focus groups and other relationship activities. Wellbeing support 9Our Master of Business interactive survey of approximately100 Queensland business owners, conducted in March 2011, found Retention and redeployment of staff 8one-third of respondents were affected by the natural disasters. Offering technical expertise 7Similarly, 29 per cent of businesses expected the Queensland economy Collaborating to achieve sustainable redevelopment 5to feel the effects of the disasters for the next 12 to 18 months. Will pay Federal Government levy 1Despite these potential setbacks, many private businesses showed the‘Queenslander’ spirit and remained confident they could grow their Other 1sales and profitability over the coming 12 months. Nothing 25 0 20 40 60Figure 10: Business impact % of businesses Base: Total businesses (n=851)Decrease in demand for my product or service 22 Supply chain issues 15Increase in demand for my product or service 10 Increased cost of sales 9 Despite the Impacts on infrastructure (roads, rail, potential setbacks, 8 communications) many private Impact to my labour force 6 businesses showed Direct property loss 4 the ‘Queenslander’ 1 Customers unable to pay or poor cash flow spirit and remainedUnder-insurance for buildings and/or contents 1 confident they Negative outcome (insurance company) 1 could grow Positive outcome (insurance company) 1 Other 1 Not impacted 49 0 20 40 60Base: Total businesses (n=851) % of businesses 15
  16. 16. Impacts of the natural disasters Queensland businesses look ahead for “New retailers are moving into Australia,” said Kevin Davis. growth opportunities “If Australian suppliers don’t engage them, buyers have options. In some cases they may turn over more of their product in North In this edition of the PwC Private Business Barometer we captured America than the Australian operation turns over here. They could, the opinions and insights from Queensland private businesses at if they chose to, just bring containers in themselves from their a Master of Business event in March and at a roundtable session in overseas operations.” April. Private businesses are now four months into their recovery and what we’ve found is that the emphasis is on long-term, not The insights provided by the group at the roundtable on short-term recovery and growth. e-retailing align with the results in the PwC Private Business Barometer. Although private businesses acknowledge there is an Private business guests who attended a roundtable discussion in opportunity in this market, they are also very wary of the threat it April were: represents. Businesses are facing increasing pressure from overseas • Allan Todd, Managing • Chris Eldridge, Chairman, competitors, particularly in electronics. Director, Todds Hi Fi, 4 Impact, a project services “One of the problems is the erosion of the value of the product a sound and vision retailer consultancy by overseas competitors,” said Allan Todd. “It is amazing how • Ron Higham, Company • Craig Davison, Managing many $500 televisions from China are sold when you can buy Director of five unlisted Director, The Outdoor a Panasonic for $800.” companies Furniture Specialists During the global financial crisis, private businesses were cautious • Kevin Davis, Managing • Melanie MacDonald, about taking on debt but now they are looking back to the banks for Director, Austech Industries Director, Koringa Business funding. Private businesses are looking for a partnership with their Pty Ltd, tools and equipment Investments, private investor bank, not simply a transactional relationship. They are looking for wholesaler in online educational a partner who will support the business growth and journey from training and property. a start-up to a medium or large enterprise. From our discussion with private business owners at the roundtable session, we learnt that most were not in favour of a flood levy to support rebuilding infrastructure. Overwhelmingly, private business owners felt that the recovery should be funded by the Federal Government to prevent a slowdown in the economy. Likewise, the majority of private business owners in other states and territories One of the problems is supported the use of a budget surplus to fund the recovery and 50 per cent do not agree with the introduction of a levy. the erosion of the value More than half of the Queensland-based private businesses of the product and we spoke to have been impacted by the natural disasters. The outlook for growth is modest, particularly in the retail sector overseas competitors. where competition from new businesses and overseas competitors has put pressure on their sales, product supply and growth outlook. The larger overseas retailers are placing particular pressure on local suppliers.16
  17. 17. Impacts of the natural disastersThe responses in the People section of this edition of the PwCPrivate Business Barometer correlate with what Queensland privatebusinesses told us. Queensland businesses, like their counterpartsin other states and territories, find that attracting and retainingtalent is a fundamental challenge.Employees are now more agile and prepared to change jobs, soemployers must look for different ways to retain key staff. Similarly,finding talented staff is also a challenge for private businesses.“The biggest challenge in the next 12 months will be finding goodstaff and empowering them while also making the business adestination customers want to shop,” said Craig Davidson.Queensland private businesses told us that they are facing similarpeople, funding, pricing and sales growth challenges highlightedin the PwC Private Business Barometer. Due to the impact of theflooding and Cyclone Yasi, private businesses in Queensland arecautious in their short-term approach and optimistic about long-term growth. They are looking at ways to ensure their businessescontinue to grow and are exploring options to compete by buyingbetter, retaining customers and promoting their brand. 17
  18. 18. “The stronger Australian dollar – which at time of writing had just passed US$1.05, its highest level in 29 years – is exacerbating these diverging experiences.” Saul Eslake Advisor, PwC Economics & Policy At the macro level, Australia’s economy is continuing to perform The stronger Australian dollar – which at time of writing had strongly compared to most of its industrialised peers. Taking into just passed US$1.05, its highest level in 29 years – is exacerbating account the impact of the largest and most sustained upswing in these diverging experiences. Australia’s terms of trade – the ratio of the average prices received But it’s an oversimplification to characterise Australia as having a for our exports to the prices paid for our imports – in at least two-speed economy, with mining (or Western Australia) at one end 140 years, Australia’s national income is growing at around 7.5 to of the spectrum and everything (or everywhere) else at the other. eight per cent per annum in real terms. And the unemployment rate Many parts of the services sector are continuing to experience is once again below five per cent, the level conventionally regarded buoyant levels of activity; while New South Wales and Victoria, – at least since the mid-1970s – as representing full employment. which are hardly at the centre of the mining boom, have Of course, these averages conceal a substantial amount of experienced faster growth in employment than anywhere variation both geographically across different regions of Australia, else in Australia over the past six months. and between different industries or sectors of the economy. It is likewise a misreading of history to characterise the dispersion Thus the resources sector is, as one would expect, experiencing in levels of economic activity across the country, or among the especially buoyant conditions, as are firms involved in engineering different sectors of the Australian economy, as a recent development. construction. On the other hand, parts of the manufacturing, Indeed, the spread between the growth rates of the fastest and tourism and retail sectors are experiencing difficult trading slowest growing states and territories, or those of the fastest conditions. Similarly, trend unemployment is down to 4.3 per and slowest growing industry sectors, has been no greater in cent in Western Australia and 2.4 per cent in the Northern the past three years than in the previous 15. Territory, but remains at 5.6 per cent in Queensland and 5.8 per cent in Tasmania.18
  19. 19. Economist’s overviewThe experience of Australia’s private businesses, as captured Private businesses are now more cautious about their sales and profitby the PwC Private Business Barometer, bears out many of the expectations for the year ahead than they were six months ago, butmessages conveyed by official statistics. Readers should regard remain optimistic about the medium-term (three-year) outlook.the fact that there are very few private businesses operating in Only one-third of private businesses have significant investmentthe resources sector, and that on this particular occasion the plans for the next six months, which is consistent with othersurvey on which the PwC Private Business Barometer is based evidence suggesting that, outside of the resources sector, capitalexcluded businesses located in Queensland to avoid the results expenditure intentions remain soft. It is encouraging that bankbeing distorted by the natural disasters that struck that State funding is becoming significantly more available for thosejust before the survey was conducted. businesses considering investment plans, suggesting that theIndeed, despite excluding Queensland, just over half the private constraints on lending imposed in the aftermath of the globalbusinesses responding to the survey reported being affected by financial crisis are now easing.those disasters, more of them negatively than positively. This backs By contrast with their cautious investment plans, almostup official forecasts that the Queensland floods and Cyclone Yasi 60 per cent of private businesses intend to hire more staff overwill detract from measured economic activity in the first half of the next six months, the highest proportion in the PwC Private2011, although it is likely that recovery and reconstruction activities Business Barometer’s history. Although more than 40 per centwill provide a stimulus to economic growth in the second half of of respondents cite a lack of qualified staff as the primarythis year and beyond. constraint on hiring, this is down around 10 per centage pointsInterestingly, 84 per cent of private businesses said they thought the from the previous survey. Businesses appear more willing, orFederal Government should have been willing to push back its plans resigned, to pay higher wages to attract and retain staff; moreto return the budget to surplus by 2012-13 to assist those adversely than 80 per cent expect wage costs to increase (by an average ofaffected by natural disasters. Half of respondents were opposed to six per cent) over the next 12 months.the Federal Government’s flood levy as a means of paying for part Probably reflecting the ongoing rise in the value of the Australianof the costs it would incur in responding to the disasters. dollar, competitive pricing represents the second most significantConsistent with the general message conveyed by official statistics, challenge facing private business operators (after shortages ofmore than twice as many private businesses reported higher sales competent staff), as nominated by 38 per cent of respondents.over the past year as reported lower sales. Those reporting higher This is likely to become an increasingly important considerationprofits outnumbered those reporting lower profits by a ratio of for businesses over the next six months.about four to three. However, overall rates of sales and (more Overall, the results are consistent with an economy that is enjoyingnoticeably) profits growth have slowed since the first half of 2010. reasonably buoyant levels of activity but with some sharplyThis is particularly apparent among private businesses in the retail contrasting experiences in different sectors and regions.sector, where more than half of the businesses surveyed failed tomeet their sales expectations during the past six months. Indeed, despite excluding Queensland, just over half the private businesses responding to the survey reported being affected by those disasters. 19
  20. 20. Since starting, the business KeepCup has grown from two to twenty staff. Like many start-up private businesses in Australia, KeepCup’s growth has brought with it some people challenges.20
  21. 21. Keeping up with growthAbigail Forsyth, CEO of KeepCup, credits her passion for the A key part of Forsyth’s business strategy was buy-in from theenvironment and desire to create a company to give back to corporate sector. During the prototype phase, she contacted NAB andthe world as the reasons for the success of her family business. Energy Australia, who were very enthusiastic about the KeepCup andKeepCup was the culmination of Forsyth identifying a need in purchased them to help engage staff in their sustainability campaigns.the market and wanting to reduce the disposable coffee cup waste. “I call corporate sales the ‘triple threat’ because it goes ontoSince its launch in 2009, KeepCup has experienced exponential someone’s desk and their colleagues ask: What’s that?” said Forsyth.growth of 300 per cent year on year. “They look up our website and tell their friends. They take it to aForsyth and her brother ran a café in Melbourne for a number of café and the staff say: What’s that? It’s a KeepCup.”years, and she noticed the high volume of disposable coffee cups Forsyth believes the KeepCup can help companies make theirthey went through. If customers came in with their own mugs, corporate responsibility and sustainability messaging morebaristas would roll their eyes – the mug wouldn’t fit in the machine consistent. Employees will find it harder to believe corporateand they didn’t know the right proportions to make the perfect messages about having a green supply chain and using lesscoffee. From this experience, the idea for a reusable coffee cup was electricity if they continue to use polystyrene cups.born and Forsyth developed the prototype KeepCup. “Employees are demanding their organisation become green andDuring the two-year development phase, the tooling and design corporate customers are requiring us to show evidence that ourof the product were crucial elements. business practices are green,” she said.“In its visual appearance, we wanted it to echo the disposable Since launching the product in 2009, the company has soldcup so it wasn’t too big a departure from what people were used over 800,000 KeepCups worldwide. Although it has exports toto carrying,” Forsyth explained. “KeepCup is well designed and Europe, New Zealand and the United Kingdom and a distributor inaesthetically appealing. You enjoy using it and then it becomes Taiwan, KeepCup’s international business strategy is still evolving.a lifestyle choice.” “We’re still finding our feet; we have been getting enquiries fromFrom a design perspective, the KeepCup had to be easy for baristas all over the world and we try to respond to them,” said use with existing coffee machines – unless baristas and roasters “The product will be most successful where there is a vibrant espressogot behind the product, it wouldn’t be widely adopted. culture and where people are concerned about sustainability.”Environmental considerations played a major role in the design Forsyth’s growth strategy for the business is to expand through aprocess. The KeepCup is made of four single-component plastics, combination of direct sales, distribution and agency. In the Unitedto facilitate recycling. All components are interchangeable between States and Canada, it is setting up third-party warehousing tothe different sizes of cups, which are microwave and dishwasher try to gain access to the market. It has started to approach newsafe. There is enough plastic in 28 disposable cups and lids to geographic markets to get a feel for the local market and themake one KeepCup. extent to which it would adopt KeepCup. Employees are demanding their organisation become green and corporate customers are requiring us to show evidence that our business practices are green. 21
  22. 22. Keeping up with growth “We’ve never engaged a public relations firm to assist us locally, as the take up has been viral, but I think we’ll engage PR on the West Coast of the United States to get some momentum behind the product,” she said. Finding a balance between work and family life is something Forsyth constantly works at, “If you’re a passionate person, who’s got the drive to start something up then your approach is very rarely balanced,” she said. When she has family time, Forsyth ensures she is always present and involved, not preoccupied replying to emails. “The jobs keep coming; you’ve got to take the time to do them but you’ve also got to be present when it’s not about work,” she explained. The jobs keep coming; you’ve got to take the time to do them Forsyth’s vision is for KeepCup to be the reusable cup of choice for but you’ve also got to be present people who regularly drink espresso coffee. What excites Forsyth about her business is the positive changes she has seen when it’s not about work. in consumers’ behaviour. “A product that is well designed, conceived and marketed can change the way people behave without top-down legislation, without being forced to do it,” she said. “People are just doing the As a new business, with expanding employee numbers, the culture right thing through word of mouth and following by example.” at KeepCup is constantly evolving. Most join the business because they’re attracted to being part of a local company that is doing Forsyth estimates that if 80 per cent of her users drink eight something positive and worthwhile. takeaway coffees per week, in one year KeepCup users will have diverted 300,000 million cups or 4,000 tonnes from landfill, and Since starting, the business has grown from two to twenty staff. saved enough energy sufficient to power 5,000 homes for a year. Like many start-up private businesses in Australia, KeepCup’s And with that, there will be more than 50,000 trees left standing growth has brought with it some people challenges. in a forest somewhere. Forsyth agrees with many respondents in this edition of the PwC “That’s a lovely thought,” she mused. Private Business Barometer, that finding people who have the right fit and skills is a challenge. After seeing a gap in the market, Forsyth’s passion for finding a creative sustainable solution has resulted in a product that is “We’re in sales, which is a dirty word for the next generation in a lot of changing the way consumers think about their impact on the respects,” she said. “To me, whatever you’re doing you’re selling – even planet. Growth to Forsyth is about doing things more efficiently if you’re an accountant. You have to sell what you do and do it well.” and what you think is right but also “having a business that is viable with your lifestyle and that people are enjoying the journey”.22
  23. 23. HighlightsGrowth Sales Over the next 12 months, private businesses Sales grew by an average of six per cent expected to increase their sales by 13 per for the last 12 months, down from eight cent and their profits by 17 per cent. per cent in October 2010. Profits for the They planned to grow sales and profits past year grew by seven per cent, down by 23 per cent over the next three years. from 12 per cent. Sales expected to increase by Sales grew by an average 13% 6%Revenue targets What would you like to grow? More than half (62 per cent) of private Nearly one-third of respondents (31 businesses met or exceeded their set per cent) said they would like to grow revenue targets for the last financial year. sales and profits, while others looked to expand their markets, products and services or hire and retain more staff. 62% met or exceeded their set revenue targets 31% would like to grow sales and profits 23
  24. 24. Business growth Sue Jackson Danielle Robertson Guy Griffiths Solterbeck Dial An Angel WOW Sight & Sound “Our target is to grow the business “We are cautiously optimistic. “Discretionary retailers, such as WOW by 50 per cent over the next three We like steady and organic growth Sight & Sound, have been hit very hard years. To do this we are focusing and we’re making sure we meet our by the economic climate. We are very on four key areas: new innovation, targets. Hearing what’s happening focused on increasing our profit. I don’t growth by delivering value to overseas and with the recent natural believe in the benefit of increasing sales existing clients, attracting new disasters, it could take its toll on if your profit doesn’t also increase. clients and developing the culture what is happening in Australia.” Our aim is to continue to be a profitable and our people.” company, one that will survive ups and downs in the economy.”24
  25. 25. Business growthGrowth trend eases Compared to the previous two PwC Private Business Barometer surveys, the number of businesses reporting decreased profits hasAustralian businesses are still growing, but the pace of growth jumped by three percentage points. This may indicate businesseshas slowed and is once again at levels experienced during the are still discounting or investing in marketing to boost financial crisis. Once again, Victorian businesses reported the strongest averageJust over half of the businesses surveyed (56 per cent) reported profit growth (11 per cent) while NSW and Western Australiahaving increased sales over the past 12 months, whereas were below the national average (six per cent and five per cent16 per cent said sales remained the same and 25 per cent reported respectively).a decrease. The average sales growth for the 12 months leadingup to this issue of the PwC Private Business Barometer was six per Despite a brief surge in profitability in March 2010, both sales andcent, down from eight per cent in October 2010. Sales growth was profits are on a downward trend, which is concerning for privatestrongest in Western Australia (nine per cent). businesses. We expect the Australian economy to take time to fully recover from the downturn and these results indicate privateOver the same period, 44 per cent of businesses reported an businesses can expect to wait for sales and profits to rebound.increase in profits, while 31 per cent said their profits had It will be interesting to see in the next PwC Private Businessdecreased and 19 per cent said there was no change. Barometer if this decline has continued.Table 2: Business growth experienced in the past 12 months Average % growth Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11Sales 15 13 14 11 8 7 5 8 6Profits 11 11 13 10 7 6 15 12 7Base: Total businesses (n=851)Table 3: Sales change experienced in the past 12 months Table 4: Profit change experienced in the past 12 months % of businesses % of businessesGrowth experienced Mar-10 Sep-10 Mar-11 Growth experienced Mar-10 Sep-10 Mar-11Increased 50 51 56 Increased 46 44 44Remained unchanged 15 19 16 Remained unchanged 13 20 19Decreased 25 25 25 Decreased 28 28 31Prefer not to answer 10 5 3 Prefer not to answer 13 8 6Total 100 100 100 Total 100 100 100Average sales growth 5 8 6 Average profit growth 15 12 7Base: Total businesses (n=851) Base: Total businesses (n=851) 25
  26. 26. Business growth Table 5: Business growth experienced in the past 12 months By state Australian Average % growth experienced businesses are still growing, NSW Vic Qld WA SA Other but the pace Sales 7 5 - 9 8 4 of growth has Profits 6 11 - 5 8 -2 slowed Base: Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49) Table 6: Sales growth experienced in the past 12 months By state Average % growth Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11 NSW 8 7 7 6 5 3 9 8 7 Vic 12 11 10 8 6 5 7 10 5 Qld 22 23 25 23 14 14 1 5 - WA 27 29 30 29 16 16 5 1 9 SA 13 13 13 12 11 9 3 10 8 Other 13 14 14 8 6 6 6 19 4 Base: Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49) Table 7: Profit growth experienced in the past 12 months By state Average % growth Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11 NSW 7 7 8 4 3 2 22 9 6 Vic 9 9 10 9 5 5 16 20 11 Qld 20 21 22 23 13 13 11 6 - WA 22 23 26 26 14 13 14 4 5 SA 13 12 14 11 9 8 6 19 8 Other 10 10 9 9 8 6 7 11 -2 Base: Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49)26
  27. 27. Business growthWere revenue targets too ambitious? Australia were the most likely to undershoot their revenue targets, with nearly half of businesses (48 per cent) in that state failing toMore private businesses in this survey met or exceeded their meet targets.revenue targets (62 per cent) than fell short (35 per cent). It isencouraging to see the number of businesses exceeding their However, the number of businesses failing to meet their targetstargets has grown consistently since the global financial crisis. is still much higher now than it was before the global financialAt their lowest point in August 2009, only 12 per cent of crisis. After the downturn, many businesses set ambitiousbusinesses surveyed said they exceeded their revenue goals. targets, expecting a quick rebound. These figures may indicate that economic recovery has not been as strong – or as evenlyIn another positive sign, the number of businesses that undershot distributed – as many business owners had hoped.targets (35 per cent) is slightly less than in the October 2010 PwCPrivate Business Barometer (37 per cent). Businesses in WesternTable 8: Success experienced in meeting set revenue targets % of businesses Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11Exceeded targets 28 28 26 24 15 12 31 29 32Met targets 59 58 60 43 39 41 34 32 30Undershot targets 14 15 14 34 46 47 34 37 35Total 100 100 100 100 100 100 100 100 100Base: Total businesses (n=851) 27
  28. 28. Business growth Table 9: Success experienced in meeting set revenue targets By state % of businesses Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11 Exceeded targets NSW 18 16 10 5 3 2 32 28 33 Vic 11 11 12 7 6 4 33 32 32 Qld 81 84 89 87 48 38 28 23 - WA 86 91 94 98 71 60 25 22 27 SA 33 34 31 Other 4 4 3 6 6 1 41 34 39 Met targets NSW 63 59 62 55 48 48 37 32 33 Vic 80 81 80 69 66 68 34 36 30 Qld 16 16 9 12 7 8 31 25 - WA 11 9 6 2 3 8 38 33 22 SA 23 26 29 Other 75 73 85 23 20 28 31 41 31 Undershot targets NSW 19 25 28 40 49 50 31 38 31 Vic 9 8 8 25 29 29 33 29 36 Qld 3 - 2 1 46 54 41 49 - WA 3 - - - 25 32 37 44 48 SA 44 38 39 Other 22 23 12 71 74 71 28 23 24 Base: Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49)28
  29. 29. Business growthSuccessful businesses take credit Of those private businesses that did not meet revenue targets, the majority said the key reason was the state of the economyBusinesses that performed well were happy to take credit for their (51 per cent), followed by lack of consumer confidence (21 per cent).success, while those that undershot their targets generally cited factors Only a small number cited internal factors, such as the business notoutside their control. Just over half (52 per cent) of private businesses being as competitive as it could have been (11 per cent), cutting backthat met or exceeded their revenue targets said their strategic direction on marketing spend (four per cent) or poorly executing their strategywas the key reason for their strong performance. Other explanations (four per cent).included the strong domestic economy (31 per cent) and new productsor services (23 per cent).Table 10: Key reasons for meeting or exceeding revenue targets in the past financial year % of businesses Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11Our strategic direction 22 22 20 18 13 10 56 60 52Strong domestic economy 34 34 35 32 25 27 27 35 31New products or services 25 28 23New systems or technology 12 11 10 8 4 4 15 28 10Other 33 33 35 42 57 59 23 13 17 Export successes 9 10 10 10 9 8 Large customer wins 6 6 7 7 6 6 Partnering or joint ventures 8 7 7 7 5 5 Not sure or unclear 8 9 10 16 36 39 Other 2 1 1 2 2 1Total 100 100 100 100 100 100 N/A N/A N/ABase: Exceeded or met revenue targets (n=531)Multiple response 29
  30. 30. Business growth Table 11: Key reasons for not meeting revenue targets in the past financial year % of businesses Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11 The economic downturn 58 53 51 Lack of consumer confidence 10 8 16 13 21 Not as competitive 1 1 8 7 11 Cut back on marketing spend 2 4 6 3 4 Impact on exports or imports 4 3 3 3 9 Couldn’t secure funding within acceptable terms 44 30 40 43 3 2 4 Couldn’t find key talent in a timely manner 45 15 5 4 2 1 4 Key partner withdrew or effected 13 4 1 1 2 1 2 Poor execution of our plan 71 31 18 16 1 2 4 Lack of product demand 9 - Increased competition 8 - Environmental or weather conditions 7 - Unclear or still in train 39 19 21 21 - - - Other 19 34 30 Base: Undershot revenue targets (n=299) Multiple response30