PWC Private Business Barometer

pwc.com.au/privateclients

Private Clients Private Business Barometer May 2011 Edition 09

Listening to Australia’s private businesses

What would you like to grow?

Can changing the way you think, change the way you grow?

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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 whatwouldyouliketogrow.com.au

How can youkick start everyday success?

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Contents

Introduction

Private business trends

Highlights

Impacts of the natural disasters

Executive summary

Methodology and sample

04

11

06

14

08 10

Economist’s overview

18Keeping up with growth

Business growth

20

23Market overview44

People46

Funding56

Business operations

64Business demographics

80PwC Private Clients

84Acknowledgements

86

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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 edition of the PwC Private Business Barometer. 2011 heralded an extraordinary time in world and local events. Many parts of Australia experienced unprecedented natural disasters including flooding, bushfires and cyclones. New Zealand and Japan were ravaged by earthquakes and the rest of the world is still reeling from the impact.

At the time the flooding hit Queensland, we were preparing to go into the field to interview private business owners for the ninth edition of the PwC Private Business Barometer. We knew that the focus for Queenslanders was on helping each other with the clean up effort and assessing and working through the impact on their businesses.

After consulting with our clients and colleagues, we decided it would be best to get the opinions of Queensland businesses using other methods including roundtable sessions and online polling at existing events. We connected with business owners in Queensland on a personal level, holding sessions with a range of business owners to capture their feelings and response to the flooding and their plans for the future.

Nationally, more than half of the businesses surveyed reported having been impacted by the natural disasters earlier this year. We have spoken to many Queensland private business owners, and at one particular breakfast event where we had almost 100 Queensland business owners in attendance, 53 per cent told us they experienced no significant impact while 26 per cent experienced significant disruption.

Perhaps in response to this, overall we found that businesses are cautious about the next 12 months but still optimistic about the next three years.

The underlying message though, is that businesses are reinvesting to prepare themselves for long-term growth. Sales are growing faster than profits which typically indicates that people are investing profits back into their business to help generate sales and create efficiencies for growth. Businesses are on the hunt for financing. During the global financial crisis we saw business owners looking internally for funding but banks have now re-emerged as a popular source of finance for investments. We’ve also seen a shift in the attitude of banks towards businesses. Banks are showing more understanding about the needs of private businesses and want to support them.

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Introduction

However, they are not loosening the purse strings – so businesses need to clearly articulate and demonstrate their case.

We again asked, “What would you like to grow?” and “Sales and profits” was the most common answer. This tells us business owners are squarely focused on the future direction and success of their businesses.

In this edition, we had the pleasure of speaking to a private business owner who is on a phenomenal growth journey. Abigail Forsyth, CEO of KeepCup, created a unique product that has changed the landscape of coffee drinking in less than two years – and experienced year-on-year growth of 300 per cent.

One of the interesting points for me has been the shift in how business strategies are being used over the lifetime of the PwC Private Business Barometer. In 2007 the majority of businesses didn’t have a plan and if they did, it was to satisfy lenders. Today’s PwC Private Business Barometer shows 94 per cent of businesses have a plan that is closely

aligned to their growth strategy. More than 50 per cent of businesses review it regularly – more than once a year.

In this edition of the PwC Private Business Barometer, businesses again highlighted their concerns in the area of attracting and retaining talent. More than half of businesses indicated they intended to hire in the next six months and 42 per cent reported a lack of qualified staff as a hiring restraint.

We spoke to Sue Jackson, Managing Director of Solterbeck, a private business which delivers motivating programs, conferences and events to engage workforces. Interestingly, when we talked to Sue about how Solterbeck finds qualified talent, she said, the company looks for the right fit and then provides training and development. “We tend to hire on how staff engage with our vision, their attitude, and whether they have a complimentary skill set – and then train people in our expertise of performance improvement,” she explained.

In the retail sector, e-retailing is growing at 10 per cent per annum – however 39 per cent of respondents told us they had no online retail plans. This area of the market presents a real opportunity for businesses and we believe it should form part of a strong future growth strategy.

The PwC Private Business Barometer is just one of the ways PwC Private Clients supports the health and vitality of Australia’s private business community. We hope you find this to be an insightful and useful tool for benchmarking your current performance and outlook for the future.

If you would like to talk to me about your business or the findings discussed in this publication, I would love to hear from you.

David Wills National Managing Partner

Private Clients (61 3) 8603 3183 pwc.com.au/privateclients

For the first time, we spoke in depth to a private business owner who is on a phenomenal growth journey.

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Highlights

Investment to spark sales

Online retailing crucial

As growth returns, businesses are investing in functions such as marketing to stimulate sales.

Many retail businesses appeared not to recognise the need to invest in online retailing to remain competitive.

Targeting new regions

Private businesses are planning to expand domestically and internationally to complement organic growth.

46% are looking to domestic or international markets.

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Highlights

Cautious optimism

Private businesses remain cautious about the short term but are more optimistic about the three-year view.

Short term sales targets are at

13%

Banks are back

Businesses are again looking to the banks for funds to fuel their growth.

21% favour the banks

Hiring plans are up and so are wages

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.

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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 investments and have a renewed appetite for borrowing from banks. Their average debt as a percentage of assets climbed from 17 per cent to 21 per cent since the last survey, arresting a steady decline during the global financial crisis (GFC).

However, these signs were relatively tentative and businesses remained cautiously optimistic over the near-term economic outlook.

Near-term uncertainty, medium-term optimism

Private businesses estimated their sales grew by an average of six per cent and profit by seven per cent over the previous 12 months. These low growth rates were similar to those experienced during the height of the GFC and economic downturn.

In addition, businesses remained concerned about the sales and profit outlook for the next 12 months. This caution was reflected in their approach to investment, with only 36 per cent planning significant investments in the coming year.

Private businesses were more optimistic about the medium-term outlook and told us they had plans to grow and pursue acquisitions in the next three years.

Pricing and funding are growing concerns

As in previous surveys, private businesses’ top concern was finding competent staff. Their second greatest challenge was competitive pricing and its effect on margins. The share of businesses that named pricing as a challenge rose from 16 per cent in the October 2010 PwC Private Business Barometer to 38 per cent in this edition. Across most industries, companies also rated pricing as a key factor in winning new business.

Hiring could get harder

Some aspects of this survey suggest recruiting talented staff will get harder for many companies.

Fewer businesses (42 per cent – down from 52 per cent in the October 2010 PwC Private Business Barometer) said a lack of qualified candidates was holding them back from hiring. Only one-third (35 per cent) of businesses did not plan to hire in the next six months. Furthermore, four in five businesses (83 per cent) said they expected wage costs to increase over the next year, predicting an average increase of six per cent.

Despite these indications that competition for staff would increase, the share of businesses planning to make changes so they were considered more appealing as employers fell from 82 per cent to 71 per cent.

This PwC Private Business Barometer also reveals that businesses have been reviewing business plans more frequently – 54 per cent reviewed them more than once a year, compared to just 12 per cent doing so in March 2010.

Retail weakening

The retail sector had weaker than expected sales over the 2010 Christmas period – only 36 per cent of retailers met their sales expectations. According to Roy Morgan Research, consumer confidence leading up to Christmas declined as many people .were concerned about their personal finances.1

Despite more consumers buying goods and services online, a surprising 39 per cent of businesses had no plans to increase their e-retail efforts. Only six per cent of retailers surveyed said they already had an established online retail strategy.

1 The Roy Morgan Research Consumer Confidence Rating in December 2010 was 120.4 down from 130.1 in October 2010.

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Executive summary

Businesses pitch in for disaster relief

This survey examines the impact of the natural disasters in Queensland at the start of 2011 and how willing Australian businesses are to pitch in and help others during times of adversity.

Half (51 per cent) of respondents outside Queensland said their businesses felt some impact from the natural disasters. One in five (22 per cent) experienced lower demand for their products or services, while 10 per cent experienced higher demand.

Four in ten (39 per cent) private businesses outside Queensland supported the Federal Government levy to help rebuild infrastructure in flood-affected areas. Other respondents said rebuilding should be financed from existing government resources or taxpayer funds.

Over half (59 per cent) of the private businesses surveyed told us they had supported the relief effort by making donations or volunteering. In addition, 18 per cent responded by showing commercial flexibility and nine per cent offered wellbeing support for affected people.

felt some impact

51%

Natural disasters in Queensland – respondents outside Queensland

experienced lower demand

22%experienced higher demand

10%

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Methodology and sample

The PwC Private Business Barometer is prepared once every six months based on detailed questioning of a large sample of Australian-owned private businesses with revenues between approximately A$10 million to A$100 million per year.

To compile this edition of the PwC Private Business Barometer, Roy Morgan Research completed telephone and online interviews with 851 businesses during February and March 2011. The market researchers interviewed the owner, chief executive officer or senior director of each business surveyed.

Fieldwork for the May 2011 PwC Private Business Barometer began immediately after natural disasters had devastated Queensland and other parts of Australia. After consultation with clients and colleagues, PwC elected not to survey Queensland businesses in the formal fieldwork commissioned for this edition of the PwC Private Business Barometer, allowing businesses to focus on recovering and rebuilding.

The PwC Private Business Barometer questionnaire includes set questions that do not change from one survey to the next, 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.

More than half (52 per cent) of respondents in this survey were business owners; 73 per cent were one of several owners of their business.

As the table below shows, the sample includes strong coverage of the major industries. Twenty-one per cent of respondents were in the manufacturing industry, 15 per cent in distribution and wholesale trade, 14 per cent in retail and 12 per cent in property and construction.

Table 1: Distribution of businesses by industry sector

% of businesses

Mar-10 Sep-10 Mar-11

Manufacturing 14 20 21

Property and construction 16 17 12

Retail trade 14 15 14

Distribution and wholesale trade 12 11 15

Business services 18 10 10

Communications, transport and storage 8 8 9

Agriculture, forestry and fishing 5 5 5

Finance and insurance 3 3 3

Other 10 10 11

Total 100 100 100

Base: Total businesses (n=851)


4012

92 4

33

NSW

Vic

WA

SA

ACT

Tas/NT

Figure 1: Geographic distribution of businesses

% of businesses

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Figure 2: Business growth in the past 12 months

Figure 3: Main drivers of competition for new business

All industries


Sales and profit growth rates down

Private businesses’ average profit and sales growth rates fell to levels last seen during the global financial crisis, against a backdrop of continued economic uncertainty.

Pricing dominates

Private businesses continued to find pricing the main factor in winning new business, albeit less so than a year ago. Customer expectations and demands also rose and margin compression re-emerged as a factor, after all but disappearing in the past two PwC Private Business Barometer surveys. This may indicate businesses are vigorously discounting their products and services to secure new customers.

Feb 07 Aug 07 Feb 08 Aug 08 Mar 09 Aug 09 Mar 10 Mar 11Sep 100

24

6

810

12

14

1618

20

Per

cent

age

grow

th r

ate

Sales Profits




10

20

30

40

50

% o

f bus

ines

ses

Pricing Product innovation

Entry of offshore firms Availability of HR talent

Customer expectations and demands Margin compression

Sales and profit growth down to global financial

crisis levels

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Setting cautious targets

Private businesses remain optimistic about medium-term sales growth targets and are taking a slightly more conservative approach to setting medium-term profit growth targets. However, businesses are setting cautious short-term targets. This is most likely due to uncertainty over domestic and international economic conditions and their impact on demand.

Geographic and product expansion complements organic growth

Private businesses plan to expand into new product and geographic markets and grow organically to meet their medium-term targets. The fact that businesses are seeking funding from banks may indicate they are already laying the groundwork to diversify into new markets.

Base: Businesses (n=851) Base: Total businesses (n=851)

Multiple response


5

10

15

20

25

30

Per

cent

age

grow

th t

arge

t

Short-term sales Short-term profits

Long-term sales Long-term profits


10

20

30

40

50

60

70

% o

f bus

ines

ses

Organic growth Expansion into new product markets

Expansion into new geographic markets Acquisition of other businesses

Do not see any real growth happening

Figure 4: Set short- and medium-term business growth targets Figure 5: Medium-term (three-year) growth strategies considered


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Businesses take on more debt

Private businesses are starting to reverse the long-standing decline in their borrowings as a percentage of their assets. Owners and senior executives are becoming more likely to approach banks and other external finance providers for loans to fund expansion.

Sticking to the plan

Private businesses are reviewing their plans more frequently. The share of respondents who reviewed their business plans more than once a year increased slightly since the last survey, while the percentage of those who only dusted off their business plans every year or two continued to fall.



10

20

30

40

50

60

70

80

% o

f bus

ines

ses

More than once yearly Every year Every two years or more

Base: Businesses that knew their debt ratio (n=584)


10

20

30

40

50

Deb

t ra

tio (%

)

Total borrowings to total assets ratio

Figure 6: Average debt ratio Figure 7: Business planning frequency


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Surveys for this issue of the PwC Private Business Barometer started soon after flooding and Cyclone Yasi devastated Queensland and other parts of Australia. We asked respondents from other states and territories a range of questions to measure the impact of these disasters on private businesses outside Queensland.

Private businesses split on levy

Thirty-nine per cent of private businesses agreed with the then-proposed Federal Government levy to help rebuild flood-affected infrastructure. Fifty per cent of private businesses did not support the levy and 11 per cent were not sure.

Businesses concerned about financial position

One fifth (19 per cent) of private business owners or managers who did not support the levy were concerned about their own financial situation. A similar percentage (18 per cent) believed there were already sufficient funds available from tax revenue and government reserves to help affected communities.

Base: Total businesses that would not support a levy (n=423)

0 10 20

Struggling financially or cannot afford to pay

Enough revenue is collected already in tax; there is enough in reserve

Many people have already donated;contributing should be voluntary

There is too much waste in the budget

Cuts should be made to otherareas of the budget

A disaster fund should be in place

People should insure themselvesand their property adequately

The state governments should haveinsurance for such events; they should pay

People will be discouraged from donating/it is not fair we are being levied as well

It sets a precedent or willpromote a bail-out mentality

I/we have received no assistancefor similar events

Governments should borrow orstay in deficit longer to pay for it

There are alternative ways ofraising the money

The levy will not be removed;once applied it will stay

There should be better regulationof the insurance industry

The money will not go to those that need it

It will push up costs of living,food, electricity etc.

Flood-prone areas shouldnot be developed or built up

Every income level should be levied; itpenalises medium and high income earners

Other

19

18

14

12

11

9

7

6

5

4

4

3

3

2

2

1

1

1

1

8

3Don't know

% of businesses


Cannot say

Do not support levy

Support levy

11

39

50

Figure 9: Reasons given for not supporting the flood levy

Figure 8: Support for Federal Government flood levy

% of businesses

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Half of non-Queensland businesses feel impact

Half (51 per cent) of Australian private businesses outside Queensland felt the impact of the natural disasters. Twenty-two per cent experienced a decrease in demand for their products or services and 15 per cent said their supply chain had been affected. On the other hand, 10 per cent experienced an increase in demand for their products or services.

While we did not interview Queensland-based private businesses for the May 2011 PwC Private Business Barometer, we measured the impact of the natural disasters and the sentiment of Queensland businesses through surveys, events, roundtable focus groups and other relationship activities.

Our Master of Business interactive survey of approximately 100 Queensland business owners, conducted in March 2011, found one-third of respondents were affected by the natural disasters. Similarly, 29 per cent of businesses expected the Queensland economy to feel the effects of the disasters for the next 12 to 18 months.

Despite these potential setbacks, many private businesses showed the ‘Queenslander’ spirit and remained confident they could grow their sales and profitability over the coming 12 months.

Many Australian private businesses pitched in to help those affected by natural disasters. Over half of respondents (59 per cent) supported those impacted by donating or volunteering. Eighteen per cent of businesses responded by showing commercial flexibility and nine per cent offered wellbeing support. Only a quarter of businesses provided no support to those impacted.



49

1

1

1

1

1

4

6

8

9

10

15

22

0 20 40 60

Not impacted

Other

Positive outcome (insurance company)

Negative outcome (insurance company)

Under-insurance for buildings and/or contents

Customers unable to pay or poor cash flow

Direct property loss

Impact to my labour force

Impacts on infrastructure (roads, rail,communications)

Increased cost of sales

Increase in demand for my product or service

Supply chain issues

Decrease in demand for my product or service

% of businesses

25

1

1

5

7

8

9

21

59

0 20 40 60

Nothing

Other

Will pay Federal Government levy

Collaborating to achieve sustainable redevelopment

Offering technical expertise

Retention and redeployment of staff

Wellbeing support

Commercial flexibility

Donations and/or volunteering

% of businessesFigure 10: Business impact

Figure 11: Support for those impacted

Despite the potential setbacks,

many private businesses showed the ‘Queenslander’

spirit and remained confident they

could grow

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Queensland businesses look ahead for growth opportunities

In this edition of the PwC Private Business Barometer we captured the opinions and insights from Queensland private businesses at a Master of Business event in March and at a roundtable session in April. Private businesses are now four months into their recovery and what we’ve found is that the emphasis is on long-term, not short-term recovery and growth.

Private business guests who attended a roundtable discussion in April were:

• Allan Todd, Managing Director, Todds Hi Fi, a sound and vision retailer

• Ron Higham, Company Director of five unlisted companies

• Kevin Davis, Managing Director, Austech Industries Pty Ltd, tools and equipment wholesaler

• Chris Eldridge, Chairman, 4 Impact, a project services consultancy

• Craig Davison, Managing Director, The Outdoor Furniture Specialists

• Melanie MacDonald, Director, Koringa Business Investments, private investor in online educational training and property.

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 supported the use of a budget surplus to fund the recovery and 50 per cent do not agree with the introduction of a levy.

More than half of the Queensland-based private businesses we spoke to have been impacted by the natural disasters. The outlook for growth is modest, particularly in the retail sector 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.

“New retailers are moving into Australia,” said Kevin Davis. “If Australian suppliers don’t engage them, buyers have options. In some cases they may turn over more of their product in North America than the Australian operation turns over here. They could, if they chose to, just bring containers in themselves from their overseas operations.”

The insights provided by the group at the roundtable on e-retailing align with the results in the PwC Private Business Barometer. Although private businesses acknowledge there is an opportunity in this market, they are also very wary of the threat it represents. Businesses are facing increasing pressure from overseas competitors, particularly in electronics.

“One of the problems is the erosion of the value of the product by overseas competitors,” said Allan Todd. “It is amazing how many $500 televisions from China are sold when you can buy a Panasonic for $800.”

During the global financial crisis, private businesses were cautious about taking on debt but now they are looking back to the banks for funding. Private businesses are looking for a partnership with their bank, not simply a transactional relationship. They are looking for a partner who will support the business growth and journey from a start-up to a medium or large enterprise.

One of the problems is the erosion of the value of the product and overseas competitors.

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The responses in the People section of this edition of the PwC Private Business Barometer correlate with what Queensland private businesses told us. Queensland businesses, like their counterparts in other states and territories, find that attracting and retaining talent is a fundamental challenge.

Employees are now more agile and prepared to change jobs, so employers 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 good staff and empowering them while also making the business a destination customers want to shop,” said Craig Davidson.

Queensland private businesses told us that they are facing similar people, funding, pricing and sales growth challenges highlighted in the PwC Private Business Barometer. Due to the impact of the flooding and Cyclone Yasi, private businesses in Queensland are cautious in their short-term approach and optimistic about long-term growth. They are looking at ways to ensure their businesses continue to grow and are exploring options to compete by buying better, retaining customers and promoting their brand.

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“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 strongly compared to most of its industrialised peers. Taking into account the impact of the largest and most sustained upswing in Australia’s terms of trade – the ratio of the average prices received for our exports to the prices paid for our imports – in at least 140 years, Australia’s national income is growing at around 7.5 to eight per cent per annum in real terms. And the unemployment rate is once again below five per cent, the level conventionally regarded – at least since the mid-1970s – as representing full employment.

Of course, these averages conceal a substantial amount of variation both geographically across different regions of Australia, and between different industries or sectors of the economy. Thus the resources sector is, as one would expect, experiencing especially buoyant conditions, as are firms involved in engineering construction. On the other hand, parts of the manufacturing, tourism and retail sectors are experiencing difficult trading conditions. Similarly, trend unemployment is down to 4.3 per cent in Western Australia and 2.4 per cent in the Northern Territory, but remains at 5.6 per cent in Queensland and 5.8 per cent in Tasmania.

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.

But it’s an oversimplification to characterise Australia as having a two-speed economy, with mining (or Western Australia) at one end of the spectrum and everything (or everywhere) else at the other. Many parts of the services sector are continuing to experience buoyant levels of activity; while New South Wales and Victoria, which are hardly at the centre of the mining boom, have experienced faster growth in employment than anywhere else in Australia over the past six months.

It is likewise a misreading of history to characterise the dispersion in levels of economic activity across the country, or among the different sectors of the Australian economy, as a recent development. Indeed, the spread between the growth rates of the fastest and slowest growing states and territories, or those of the fastest and slowest growing industry sectors, has been no greater in the past three years than in the previous 15.

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Economist’s overview

The experience of Australia’s private businesses, as captured by the PwC Private Business Barometer, bears out many of the messages conveyed by official statistics. Readers should regard the fact that there are very few private businesses operating in the resources sector, and that on this particular occasion the survey on which the PwC Private Business Barometer is based excluded businesses located in Queensland to avoid the results being distorted by the natural disasters that struck that State just before the survey was conducted.

Indeed, despite excluding Queensland, just over half the private businesses responding to the survey reported being affected by those disasters, more of them negatively than positively. This backs up official forecasts that the Queensland floods and Cyclone Yasi will detract from measured economic activity in the first half of 2011, although it is likely that recovery and reconstruction activities will provide a stimulus to economic growth in the second half of this year and beyond.

Interestingly, 84 per cent of private businesses said they thought the Federal Government should have been willing to push back its plans to return the budget to surplus by 2012-13 to assist those adversely affected by natural disasters. Half of respondents were opposed to the Federal Government’s flood levy as a means of paying for part of the costs it would incur in responding to the disasters.

Consistent with the general message conveyed by official statistics, more than twice as many private businesses reported higher sales over the past year as reported lower sales. Those reporting higher profits outnumbered those reporting lower profits by a ratio of about four to three. However, overall rates of sales and (more noticeably) profits growth have slowed since the first half of 2010. This is particularly apparent among private businesses in the retail sector, where more than half of the businesses surveyed failed to meet their sales expectations during the past six months.

Private businesses are now more cautious about their sales and profit expectations for the year ahead than they were six months ago, but remain optimistic about the medium-term (three-year) outlook.

Only one-third of private businesses have significant investment plans for the next six months, which is consistent with other evidence suggesting that, outside of the resources sector, capital expenditure intentions remain soft. It is encouraging that bank funding is becoming significantly more available for those businesses considering investment plans, suggesting that the constraints on lending imposed in the aftermath of the global financial crisis are now easing.

By contrast with their cautious investment plans, almost 60 per cent of private businesses intend to hire more staff over the next six months, the highest proportion in the PwC Private Business Barometer’s history. Although more than 40 per cent of respondents cite a lack of qualified staff as the primary constraint on hiring, this is down around 10 per centage points from the previous survey. Businesses appear more willing, or resigned, to pay higher wages to attract and retain staff; more than 80 per cent expect wage costs to increase (by an average of six per cent) over the next 12 months.

Probably reflecting the ongoing rise in the value of the Australian dollar, competitive pricing represents the second most significant challenge facing private business operators (after shortages of competent staff), as nominated by 38 per cent of respondents. This is likely to become an increasingly important consideration for businesses over the next six months.

Overall, the results are consistent with an economy that is enjoying reasonably buoyant levels of activity but with some sharply contrasting experiences in different sectors and regions.

Indeed, despite excluding Queensland, just over half the private businesses responding to the survey reported being affected by those disasters.

2020

KeepCup

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Since starting, the business 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.

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Abigail Forsyth, CEO of KeepCup, credits her passion for the environment and desire to create a company to give back to the world as the reasons for the success of her family business. KeepCup was the culmination of Forsyth identifying a need in the market and wanting to reduce the disposable coffee cup waste. Since its launch in 2009, KeepCup has experienced exponential growth of 300 per cent year on year.

Forsyth and her brother ran a café in Melbourne for a number of years, and she noticed the high volume of disposable coffee cups they went through. If customers came in with their own mugs, baristas would roll their eyes – the mug wouldn’t fit in the machine and they didn’t know the right proportions to make the perfect coffee. From this experience, the idea for a reusable coffee cup was born and Forsyth developed the prototype KeepCup.

During the two-year development phase, the tooling and design of the product were crucial elements.

“In its visual appearance, we wanted it to echo the disposable cup so it wasn’t too big a departure from what people were used to carrying,” Forsyth explained. “KeepCup is well designed and aesthetically appealing. You enjoy using it and then it becomes a lifestyle choice.”

From a design perspective, the KeepCup had to be easy for baristas to use with existing coffee machines – unless baristas and roasters got behind the product, it wouldn’t be widely adopted.

Environmental considerations played a major role in the design process. The KeepCup is made of four single-component plastics, to facilitate recycling. All components are interchangeable between the different sizes of cups, which are microwave and dishwasher safe. There is enough plastic in 28 disposable cups and lids to make one KeepCup.

A key part of Forsyth’s business strategy was buy-in from the corporate sector. During the prototype phase, she contacted NAB and Energy Australia, who were very enthusiastic about the KeepCup and purchased them to help engage staff in their sustainability campaigns.

“I call corporate sales the ‘triple threat’ because it goes onto someone’s desk and their colleagues ask: What’s that?” said Forsyth. “They look up our website and tell their friends. They take it to a café and the staff say: What’s that? It’s a KeepCup.”

Forsyth believes the KeepCup can help companies make their corporate responsibility and sustainability messaging more consistent. Employees will find it harder to believe corporate messages about having a green supply chain and using less electricity if they continue to use polystyrene cups.

“Employees are demanding their organisation become green and corporate customers are requiring us to show evidence that our business practices are green,” she said.

Since launching the product in 2009, the company has sold over 800,000 KeepCups worldwide. Although it has exports to Europe, New Zealand and the United Kingdom and a distributor in Taiwan, KeepCup’s international business strategy is still evolving.

“We’re still finding our feet; we have been getting enquiries from all over the world and we try to respond to them,” said Forsyth. “The product will be most successful where there is a vibrant espresso culture and where people are concerned about sustainability.”

Forsyth’s growth strategy for the business is to expand through a combination of direct sales, distribution and agency. In the United States and Canada, it is setting up third-party warehousing to try to gain access to the market. It has started to approach new geographic markets to get a feel for the local market and the extent to which it would adopt KeepCup.

Keeping up with growth

Employees are demanding their organisation become green and corporate customers are requiring us to show evidence that our business practices are green.

22

“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.

As a new business, with expanding employee numbers, the culture at KeepCup is constantly evolving. Most join the business because they’re attracted to being part of a local company that is doing something positive and worthwhile.

Since starting, the business 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.

Forsyth agrees with many respondents in this edition of the PwC Private Business Barometer, that finding people who have the right fit and skills is a challenge.

“We’re in sales, which is a dirty word for the next generation in a lot of respects,” she said. “To me, whatever you’re doing you’re selling – even if you’re an accountant. You have to sell what you do and do it well.”

Forsyth’s vision is for KeepCup to be the reusable cup of choice for people who regularly drink espresso coffee. What excites Forsyth about her business is the positive changes she has seen 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 right thing through word of mouth and following by example.”

Forsyth estimates that if 80 per cent of her users drink eight takeaway coffees per week, in one year KeepCup users will have diverted 300,000 million cups or 4,000 tonnes from landfill, and saved enough energy sufficient to power 5,000 homes for a year. And with that, there will be more than 50,000 trees left standing in a forest somewhere.

“That’s a lovely thought,” she mused.

After seeing a gap in the market, Forsyth’s passion for finding a creative sustainable solution has resulted in a product that is changing the way consumers think about their impact on the planet. Growth to Forsyth is about doing things more efficiently and what you think is right but also “having a business that is viable with your lifestyle and that people are enjoying the journey”.

Keeping up with growth

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.

23

Highlights

Growth Sales

Over the next 12 months, private businesses expected to increase their sales by 13 per cent and their profits by 17 per cent. They planned to grow sales and profits by 23 per cent over the next three years.

Sales grew by an average of six per cent for the last 12 months, down from eight per cent in October 2010. Profits for the past year grew by seven per cent, down from 12 per cent.

Sales expected to increase by

13%


Nearly one-third of respondents (31 per cent) said they would like to grow sales and profits, while others looked to expand their markets, products and services or hire and retain more staff.

31% would like to grow sales and profits

Sales grew by an average

6%

Revenue targets

More than half (62 per cent) of private businesses met or exceeded their set revenue targets for the last financial year.

62% met or exceeded their set revenue targets

24

Business growth

“Our target is to grow the business by 50 per cent over the next three years. To do this we are focusing on four key areas: new innovation, growth by delivering value to existing clients, attracting new clients and developing the culture and our people.”

“We are cautiously optimistic. We like steady and organic growth and we’re making sure we meet our targets. Hearing what’s happening overseas and with the recent natural disasters, it could take its toll on what is happening in Australia.”

“Discretionary retailers, such as WOW Sight & Sound, have been hit very hard by the economic climate. We are very focused on increasing our profit. I don’t believe in the benefit of increasing sales if your profit doesn’t also increase. Our aim is to continue to be a profitable company, one that will survive ups and downs in the economy.”

Sue Jackson

Solterbeck

Danielle Robertson

Dial An Angel

Guy Griffiths

WOW Sight & Sound

25

Business growth

Growth trend eases

Australian businesses are still growing, but the pace of growth has slowed and is once again at levels experienced during the global financial crisis.

Just over half of the businesses surveyed (56 per cent) reported having increased sales over the past 12 months, whereas 16 per cent said sales remained the same and 25 per cent reported a decrease. The average sales growth for the 12 months leading up to this issue of the PwC Private Business Barometer was six per cent, down from eight per cent in October 2010. Sales growth was strongest in Western Australia (nine per cent).

Over the same period, 44 per cent of businesses reported an increase in profits, while 31 per cent said their profits had decreased and 19 per cent said there was no change.

Compared to the previous two PwC Private Business Barometer surveys, the number of businesses reporting decreased profits has jumped by three percentage points. This may indicate businesses are still discounting or investing in marketing to boost sales.

Once again, Victorian businesses reported the strongest average profit growth (11 per cent) while NSW and Western Australia were below the national average (six per cent and five per cent respectively).

Despite a brief surge in profitability in March 2010, both sales and profits are on a downward trend, which is concerning for private businesses. We expect the Australian economy to take time to fully recover from the downturn and these results indicate private businesses can expect to wait for sales and profits to rebound. It will be interesting to see in the next PwC Private Business 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-11

Sales 15 13 14 11 8 7 5 8 6

Profits 11 11 13 10 7 6 15 12 7


Table 3: Sales change experienced in the past 12 months

% of businesses

Growth experienced Mar-10 Sep-10 Mar-11

Increased 50 51 56

Remained unchanged 15 19 16

Decreased 25 25 25

Prefer not to answer 10 5 3

Total 100 100 100

Average sales growth 5 8 6


Table 4: Profit change experienced in the past 12 months

% of businesses

Growth experienced Mar-10 Sep-10 Mar-11

Increased 46 44 44

Remained unchanged 13 20 19

Decreased 28 28 31

Prefer not to answer 13 8 6

Total 100 100 100

Average profit growth 15 12 7


26

Table 5: Business growth experienced in the past 12 months

By state

Average % growth experienced

NSW Vic Qld WA SA Other

Sales 7 5 - 9 8 4

Profits 6 11 - 5 8 -2

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


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


Australian businesses are still growing, but the pace

of growth has slowed

Table 7: Profit growth experienced in the past 12 months

By state

Average % growth


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


Business growth

27

Were revenue targets too ambitious?

More private businesses in this survey met or exceeded their revenue targets (62 per cent) than fell short (35 per cent). It is encouraging to see the number of businesses exceeding their targets has grown consistently since the global financial crisis. At their lowest point in August 2009, only 12 per cent of businesses surveyed said they exceeded their revenue goals.

In another positive sign, the number of businesses that undershot targets (35 per cent) is slightly less than in the October 2010 PwC Private Business Barometer (37 per cent). Businesses in Western

Australia were the most likely to undershoot their revenue targets, with nearly half of businesses (48 per cent) in that state failing to meet targets.

However, the number of businesses failing to meet their targets is still much higher now than it was before the global financial crisis. After the downturn, many businesses set ambitious targets, expecting a quick rebound. These figures may indicate that economic recovery has not been as strong – or as evenly distributed – as many business owners had hoped.

Table 8: Success experienced in meeting set revenue targets

% of businesses


Exceeded targets 28 28 26 24 15 12 31 29 32

Met targets 59 58 60 43 39 41 34 32 30

Undershot targets 14 15 14 34 46 47 34 37 35

Total 100 100 100 100 100 100 100 100 100


Business growth

28

Table 9: Success experienced in meeting set revenue targets

By state

% of businesses


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


Business growth

29

Successful businesses take credit

Businesses that performed well were happy to take credit for their success, while those that undershot their targets generally cited factors outside their control. Just over half (52 per cent) of private businesses that met or exceeded their revenue targets said their strategic direction was the key reason for their strong performance. Other explanations included the strong domestic economy (31 per cent) and new products or services (23 per cent).

Of those private businesses that did not meet revenue targets, the majority said the key reason was the state of the economy (51 per cent), followed by lack of consumer confidence (21 per cent). Only a small number cited internal factors, such as the business not being as competitive as it could have been (11 per cent), cutting back on marketing spend (four per cent) or poorly executing their strategy (four per cent).

Table 10: Key reasons for meeting or exceeding revenue targets in the past financial year

% of businesses


Our strategic direction 22 22 20 18 13 10 56 60 52

Strong domestic economy 34 34 35 32 25 27 27 35 31

New products or services 25 28 23

New systems or technology 12 11 10 8 4 4 15 28 10

Other 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 1

Total 100 100 100 100 100 100 N/A N/A N/A

Base: Exceeded or met revenue targets (n=531)

Multiple response

Business growth

30

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 response

Business growth

31

Optimistic for the medium term but uncertain about the year to come

As the Australian economy emerged from the global financial crisis, private businesses were very optimistic about their sales and profit forecasts for the 12-month and three-year periods ahead. As we have seen, this may have contributed to the relatively high number of businesses undershooting their targets in the current survey. In the latest edition of the PwC Private Business Barometer, firms were more cautious about the next 12 months, expecting an average 13 per cent sales growth, but were still optimistic for the next three years.

The business services sector has set an ambitious target of 18 per cent sales growth for the coming year. Prospects appear less optimistic in the retail trade sector which is anticipating only 10 per cent sales growth, on average, in the next 12 months.

Business services firms also have high expectations for the medium term, with an anticipated 29 per cent growth in sales and a 27 per cent increase in profits over the next three years.

Western Australian businesses have set themselves high short- and medium-term sales targets (17 per cent and 25 per cent respectively). However, past experience shows these goals may be overoptimistic. In this survey, 48 per cent of businesses in WA did not achieve their growth plans for the current period.

Table 12: Short- and medium-term sales and profit targets

Average % growth target

Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Feb-10 Sep-10 Mar-11

Short term (one year)

Sales 18 18 15 11 6 7 13 15 13

Profits 17 17 16 10 7 7 17 20 17

Medium term (three years)

Sales 14 15 14 13 10 12 18 22 23

Profits 12 12 14 13 11 14 25 25 23


Business growth

32


By industry


Manufacturing Business services Retail trade Distribution/ wholesale

Property/ construction


Sales 12 18 10 12 14

Profits 19 16 13 17 14


Sales 25 29 14 19 24

Profits 25 27 18 24 24

Base: Total businesses (manufacturing n=182; business services n=85; retail trade n=122; distribution and wholesale n=130; property and construction n=103)


By state




Sales 12 13 - 17 11 14

Profits 16 16 - 21 17 18


Sales 23 23 - 25 20 22

Profits 22 24 - 24 21 32


Optimistic for the medium term but uncertain about the year to come

Business growth

33

Organic growth still number one

When considering the source of their future growth, about half of all businesses surveyed said they would expand organically (51 per cent for the short-term and 49 per cent for the medium-term). Opening up new product markets was the next most popular choice (40 per cent for the short term and 45 per cent for the medium term).

When combined, domestic and overseas geographic expansion plans were the second most popular medium- term expansion strategy (49 per cent for the medium term and 39 per cent for the short term).

Are expansion plans on hold?

Businesses are saying they want to rely on organic growth until the economic situation becomes clearer before making firm plans for acquisition or geographic expansion. Only 20 per cent of businesses said they expected to acquire other companies over the next 12 months, but 28 per cent had acquisition plans for the next three years.

The emphasis on organic growth raises questions about whether private businesses will be able to achieve their expansion plans. This will be especially problematic for private businesses if their competitors are also focused on growing organically. PwC believes businesses that think outside the square and pursue alternative growth strategies will be better placed to achieve greater results.

Start making online plans

Surprisingly, even though consumers are buying ever more goods and services online, 39 per cent of retail businesses surveyed told us they had no plans to increase their e-retailing efforts. Only six per cent of retailers said they already had an established e-retailing strategy.

51 49

20

28

45

2935

1722

39

49

5 49 7

40

0

10

20

30

40

50

60

Organicgrowth

Acquisitionof other

businesses

Expansioninto newproductmarkets

Expansioninto new

geographicmarketswithin

Australia

Expansioninto new

geographicmarketsoverseas

Expansioninto new

geographicmarkets

(domesticand overseas

combined)

Others Nothing

% o

f bus

ines

ses

Short term Medium term

Figure 12: Short- and medium-term growth strategies

Business growth


Multiple response

55%

39%

6%

Yes

No

Already haveonline retail strategy

Figure 13: Increasing focus and budget for online retail

Retail trade % of businesses

34

Table 15: Short-term (one-year) growth strategies considered

% of businesses


Organic growth 54 54 52 59 45 45 56 53 51

Expansion into new product markets 21 22 22 17 12 11 44 47 40

Expansion into new geographic markets within Australia 9 9 10 7 2 2 31 42 29

Expansion into new geographic markets overseas 20 17

Acquisition of other businesses 9 10 12 6 3 4 23 24 20

Other:

Additional capital raisings 10 9 10 11 13 15 - - -

Capital investment program 7 6 5 3 1 3 - - -

New headcount 5 5 5 2 - - - - -

Partnering/joint ventures 8 7 7 4 1 1 - - -

Not sure/unknown 7 6 7 9 18 17 1 1 2

Other reasons 3 3 3 1 2 1 3 5

Don’t see any real growth happening/nothing - - - - 31 27 11 9 9


Multiple response

Business growth

35

Table 16: Medium-term (three-year) growth strategies considered

% of businesses


Organic growth 45 44 44 53 25 24 56 54 49

Expansion into new product markets 14 13 13 18 14 12 49 50 45

Expansion into new geographic markets within Australia12 12 15 17 8 9 37

46 35

Expansion into new geographic markets overseas 25 22

Acquisition of other businesses 16 17 22 11 4 6 27 32 28

Other

Additional capital raisings 15 16 14 12 18 17 - - -

Capital investment program 8 9 10 10 4 8 - - -

New headcount 3 3 3 4 1 1 - - -

Partnering/joint ventures 11 11 10 11 2 1 - - -

Not sure/unknown 9 8 11 13 19 17 2 2 2

Other reasons 2 2 2 1 2 2 3 1 4

Don’t see any real growth happening/nothing - - - - 17 15 8 8 7


Multiple response

Business growth

36


By industry sector

% of businesses

Manufacturing Business services Retail trade Distribution/

wholesaleProperty/

construction

Organic growth 45 61 48 52 42

Expansion into new product markets 55 41 30 62 27

Expansion into new geographic markets within Australia 24 38 24 35 31

Expansion into new geographic markets overseas 26 18 6 22 4

Acquisition of other businesses 18 28 17 25 7

Not sure/unknown 1 1 2 2 5

Other 4 4 4 5 8

Don’t see any real growth happening/nothing 5 6 11 5 18


Multiple response


By state

% of businesses


Organic growth 50 52 - 53 55 49

Expansion into new product markets 42 42 - 37 39 24

Expansion into new geographic markets within Australia 29 28 - 28 30 33

Expansion into new geographic markets overseas 20 16 - 17 13 8

Acquisition of other businesses 21 23 - 21 17 6

Not sure/unknown 1 3 - 3 - -

Other 3 6 - 7 3 4

Don’t see any real growth happening/nothing 8 8 - 6 12 20

Base:Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49)

Multiple response

Business growth

37


By state

% of businesses


Organic growth 47 51 - 54 48 51

Expansion into new product markets 49 48 - 41 42 22

Expansion into new geographic markets within Australia 34 37 - 33 38 37

Expansion into new geographic markets overseas 24 23 - 22 16 14

Acquisition of other businesses 29 28 - 28 22 22

Not sure/unknown 2 2 - 4 1 -

Other 3 6 - 7 - 4

Don't see any real growth happening/nothing 8 5 - 6 12 16


Multiple response


By industry sector

% of businesses


wholesaleProperty/

construction

Organic growth 45 60 46 49 50

Expansion into new product markets 59 47 33 66 30

Expansion into new geographic markets within Australia 31 39 33 42 37

Expansion into new geographic markets overseas 30 31 6 26 7

Acquisition of other businesses 25 36 24 35 15

Not Sure/unknown 2 1 2 2 4

Other 5 5 6 3 6

Don't see any real growth happening/nothing 3 7 10 4 12


Multiple response

Business growth

38

Less emphasis on impediments to growth

While businesses still view macroeconomic factors as the major potential impediments to meeting their growth targets, these issues are now considerably less of a challenge than they were in the October 2010 PwC Private Business Barometer. Businesses nominated consumer confidence as the primary impediment to growth (44 per cent of respondents, down from 61 per cent in October 2010). The global economic condition was a close second (42 per cent, down from 63 per cent).

In general, respondents nominated growth constraints less frequently in the current PwC Private Business Barometer than in the October 2010 edition, which might indicate businesses are more optimistic and less worried about the state of the economy.

Approximately one in seven businesses (14 per cent) said the natural disasters across the country in early 2011 would be an impediment to meeting targets. This edition of the PwC Private Business Barometer did not include Queensland-based businesses, which were most affected by natural disasters at the time of the survey.

44 4238

3227

21 2015 14

05

101520253035404550

Consumerconfidence

Globaleconomicconditions

Businessconfidence

Interestrate

increases

Currencyfluctuations

Availabilityof credit

Cost offunding

Terms andconditionsof available

credit

Australiannaturaldisaster

(e.g. floods)

% o

f bus

ines

ses

Figure 14: Potential impediments to meeting targets in the next year


Multiple response

Business growth

39

Table 21: Potential impediments to meeting targets in the next year

% of businesses


Global economic conditions 21 19 56 63 42

Consumer confidence 5 4 54 61 44

Business confidence 50 60 38

Interest rate rises 14 17 24 26 40 46 32

Cost of funding 27 31 37 37 20

Currency fluctuations 15 12 16 13 32 34 27

Availability of credit 51 67 79 82 32 37 21

Terms and conditions of available credit 29 33 15

Australian natural disasters 14

Other 39 51 - - 13 11 15

None 18 11 3 3 - - -


Multiple response

Less emphasis on impediments to growth

Approximately one in seven businesses (14 per cent) said the natural disasters across Australia in early 2011 would be an impediment to meeting targets. This edition of the PwC Private Business Barometer did not include Queensland-based businesses, which were most affected by natural disasters at the time of the survey.

Business growth

40


By industry sector

% of businesses


wholesaleProperty/

construction

Global economic conditions 47 40 31 46 36

Consumer confidence 40 34 63 56 41

Business confidence 37 53 37 42 46

Interest rate rises 25 25 45 39 36

Cost of funding 16 13 20 19 29

Currency fluctuations 38 12 20 49 8

Availability of credit 18 20 22 16 35

Terms and conditions of available credit 11 14 16 15 23

Australian natural disasters 15 7 16 17 15

Other 15 14 14 14 17

None - - - - -


Multiple response

Business growth

41


By state

% of businesses


Global economic conditions 39 44 - 56 44 29

Consumer confidence 44 45 - 39 43 41

Business confidence 36 40 - 41 39 41

Interest rate rises 30 33 - 34 32 41

Cost of funding 20 17 - 21 17 29

Currency fluctuations 24 33 - 26 21 20

Availability of credit 19 21 - 29 25 14

Terms and conditions of available credit 16 13 - 16 21 12

Australian natural disasters 14 15 - 14 12 14

Other 17 13 - 11 16 27

None - - - - - -


Multiple response

Sale to private equity a growing option

Alongside other indicators of cautious optimism in the private business community, the share of respondents looking to exit their business grew slightly to seven per cent, up from a low of five per cent throughout 2010. This could indicate business owners are looking to realise value by selling their businesses to a third party

or private-equity consortium. The proportion of business owners looking to sell to private equity increased from seven per cent in October 2010 to 13 per cent in March 2011.

At the same time, a sharp drop in business owners looking to sell to a third party (down from 31 per cent to 16 per cent) corresponded with a jump in those considering other exit strategies.

Table 24: Exiting business in next two years?

% of businesses


Yes 16 16 16 21 8 14 5 5 7

No 78 77 75 68 79 74 91 90 87

Not sure 7 7 8 12 13 11 4 5 7

Total 100 100 100 100 100 100 100 100 100


Business growth

42

Table 25: Business exit strategies considered in the next two years

% of businesses Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-11

Sale of business to a competitor 23 27 32 32 - 9 27 26 25

Sale of business to a 3rd party 27 27 32 27 9 14 19 31 16

Sale to current employees 18 14 14 17 9 5

Sale to a private equity consortium - - 5 14 7 13

Sale to a family member 9 14 18 9 7 9

Initial public offering 18 18 14 5 5 9 3 4 2

Venture capital 5 - - - - -

Not sure/unclear 32 32 36 55 59 50 - - 9

Other - - - - - - 11 15 21

TOTAL 100 100 100 100 100 100 100 100 100

Base: Businesses planning to exit business (n=56)

Business growth

43


At PwC Private Clients, we enjoy having conversations with business owners, directors, senior managers and the broader community about what they would like to grow. Growth is not just about sales or personal wealth; it’s also about growing as a person and – at a company level – becoming a more sustainable and involved corporate citizen.

As in the October 2010 PwC Private Business Barometer, nearly one third of respondents (31 per cent) said they would like to grow sales and profits. An increasing number of surveyed business owners and managers were looking to grow the businesses in other ways, such as expanding into other markets and services (10 per cent, up from five per cent in October 2010) and hiring or retaining more staff (10 per cent, up from three per cent).

However, private businesses are likely to encounter problems with staff retention, given the share of respondents who said they wanted to improve staff benefits and working environment dropped drastically from 19 per cent in October 2010 to just four per cent in the current survey. This may still reflect the post-global-financial-crisis sensibility of belt-tightening and focusing on fundamentals.

This question elicited a wide range of responses, with several suggestions around the operational side of the business such as greater efficiency, new technology, refurbishing the office and increasing customer satisfaction and retention.

Table 26: What do you want to grow?

% of businesses

Sep-10 Mar-11

Increase sales or profit 30 31

Improve staff benefits or working environment 19 4

Organic growth 10 2

Expand into other markets or a wider range of services 5 10

Sustainable business or financial security 5 1

Greater efficiency 4 4

More clients or customers 3 4

Hire or retain more staff 3 10

Increase market share 3 5

Customer satisfaction and retention 3 3

Brand awareness and image 2 2

Everything 2 1

Refurbish or replace offices 2 2

Succession planning 2 -

New technology 2 3

Other 15 23

None 11 11

Can’t say 15 20

Base: Total businesses (n=851) Multiple response

Business owners would like to

grow their sales and profits

Business growth

44

Businesses are realising that they cannot rely purely on organic growth as their sole growth strategy.

Gregory Will

Partner PwC Private Clients

The May 2011 edition of the PwC Private Business Barometer revealed that private business owners are reinvesting in their businesses to prepare for long-term growth.Three in five (62 per cent) private businesses exceeded or met their revenue targets for the last financial year. More than 50 per cent of these businesses attributed commitment to their strategy as the reason for their success.

Private businesses are planning for the future. Businesses are realising they cannot rely purely on organic growth as their sole growth strategy. They are now looking at acquisitions, new product markets and geographic expansion to help them achieve their growth targets. Two in five (40 per cent) private businesses are planning to expand into new product markets and 29 per cent plan to expand into new geographic markets within Australia.

Likewise, 17 per cent nominated expansion into new geographic markets overseas as one of their growth strategies.

Private businesses told us they reviewed their business plans more frequently. Half of businesses (54 per cent) review them more than once a year. This edition shows 94 per cent of businesses have a plan that is closely aligned to their growth strategy. This is pleasing to see and a good business practice to maintain.

We encourage private business owners to ensure their business plans have the necessary elements to enable them to stay on their growth path. At PwC, we believe the core elements of a strategic plan include:

• An ultimate goal

• Market analysis

• Competitor review

• Sales and marketing

• Products and services

• People

• Financial goals and forecast

• Systems

• Critical issues and risk assessment.

45

It’s essential that you keep yourself accountable and that everyone in the business knows what the plan is and their role in supporting it.

In the retail sector, 39 per cent of businesses have no plans to engage in e-retailing. Australia has experienced rapid growth in online shopping and we believe there is an opportunity for retailers to engage their customers online. We believe an investment in the technology and tools to market products and services online makes good business sense and is the way of the future.

The hunger for growth is evident by private businesses reinvesting profits back into their businesses to prepare for long-term growth. Many private businesses are investing in marketing, sales and operational efficiencies. More than half (56 per cent) of private businesses reported their sales increased over the past 12 months whereas one quarter (25 per cent) experienced a decrease in sales.

The PwC Private Business Barometer has revealed that attracting and retaining talent remains a challenge for private businesses. More than half (59 per cent) of private business said they intended to hire new staff in the next six months. The number of private businesses not hiring has decreased from 64 per cent in 2008 to a new low of 35 per cent.

The primary challenge for businesses is finding competent staff. Four out of five private businesses expect wage costs to increase over the next 12 months by an average 6 per cent.

As a result, private businesses are executing strategies to attract and retain talented staff. In addition, nine in ten (92 per cent) businesses have a mix of retention strategies in place for key staff. Pay-related strategies and flexible working hours rate highly as practices to attract and retain staff in private businesses rather than their competitors.

The PwC Private Business Barometer revealed that competitive pricing is a growing challenge for private businesses, behind funding and finding competent people. More than one-third (38 per cent) of private businesses reported that in an increasingly competitive environment, pricing is a key challenge for them.

The PwC Private Business Barometer highlights that private businesses are cautious about how they spend their money and are steadily reinvesting to create growth to help them achieve their future targets. There is an immense opportunity for private businesses to plan and execute an investment strategy and by doing so, create change and long-term growth.

Market overview

Cautious optimism

Private businesses remain cautious about the short term but are more optimistic about the three-year view.

46

People

Solterbeck

46

47

People

Solterbeck delivers powerful, motivating programs designed to increase engagement and improve discretionary performance.

Our engagement solutions are strategic, clever, proven and practical. Carefully designed and meticulously implemented our incentive, reward and recognition programs, conferences and events ensure a greater level of engagement with corporate objectives by recognising and rewarding employee and channel-partner contributions. Whether you’re trying to entrench particular behaviours or increase sales, powering great performance is the first step to improving profits.

We stimulate success

We drive engagement and discretionary employee and partner behaviour in three key areas:

•Therightincentive will generate significant return on investment by encouraging improved levels of discretionary performance from employees and channel partners.

•Therightcommunication combines strategic focus and creative impact to ensure employees and channel partners are informed, educated, and inspired to achieve exactly the right outcomes.

•Therightreward may be merchandise, experiences, vouchers, group or personal travel, events or sometimes even cash. We tailor rewards that motivate each different audience, complement business strategy and work within budget.

•Alignemployees with corporate values.

•Improveacompany’s brand image both internally and externally.

•Createanongoing culture of productivity and pro-activity.

solterbeck.com

48

Highlights

New staff Recruitment

More than half of the respondents surveyed (59 per cent) said they intended to hire new staff in the next six months.

A lack of qualified staff was the most commonly cited impediment to recruiting new staff but this is less of a problem now (42 per cent of businesses) than it was six months ago (52 per cent of businesses).

Battle for talent

The share of employers planning changes to make them more competitive in the war for talent fell from 82 per cent to 71 per cent.

Wages

A wage increase seems almost inevitable – 83 per cent of private businesses expect wages to rise.

59% plan to hire in the next six months

The desire to stand out as employer of choice is falling

42% are concerned about a lack of qualified staff

83% expect wages to rise

49

People

“Our strategy when it comes to people is personalisation. We go to great lengths to accommodate each person’s goals and desires and understand what it is that makes each staff member happy. We focus on their strengths and offer them every support to help them be the best they can be.”

“Lack of qualified staff is a big issue for the ‘Angel’ side of our business. This has been an issue for us for 44 years. When we find good people, we grab them and try to work with them in the long term. We have staff who have been with Dial An Angel for many years. Our culture is family oriented; we are a family business and that ethos of family values comes through.”

“WOW Sight & Sound has a very entrepreneurial culture and that culture translates onto the sales floor. You can’t buy something like that. Our store managers and staff have the flexibility to design their merchandising to their own advantage. Our stores aren’t a replica of each other. This gives our people the opportunity to take ownership of the store they work in and design a merchandising plan that works for them.”

Sue Jackson

Solterbeck

Danielle Robertson

Dial An Angel

Guy Griffiths

WOW Sight & Sound

50

Qualified people slightly easier to find

Finding qualified staff was the most common constraint in hiring new people according to 42 per cent of private businesses. However, this figure is down from 52 per cent only six months ago, providing evidence that people are more willing to change jobs.

Other hiring constraints include general economic concerns (up from 0 per cent six months ago to 27 per cent) and government regulations (up from three per cent to 19 per cent). This reflects ongoing uncertainty about issues such as the Federal Government’s proposed mining and carbon taxes.

42

27 2724

19

5

16

0

10

20

30

40

50

60

Lack ofqualified

talent

High wagecosts

General economic conditions

Lack ofbusinessdemand

Governmentregulations

Other Not hiringat present

% o

f bus

ines

ses

Table 27: Hiring intentions in the next six months

% of businesses


Full time or part time 57 57 59

Full time 37 40 32 20 12 9

Part time 41 45 32 25 9 12

Not hiring 54 50 58 64 41 41 40 39 35

Not sure 5 4 7 9 32 31 4 4 6

Total N/A N/A N/A N/A N/A N/A 100 100 100


Figure 15: Major hiring constraints

Hiring intentions gather pace

The optimism of private business owners and managers is demonstrated by their intention to recruit. More than half of private businesses surveyed (59 per cent) said they intended to hire new staff in the next six months.

People


51

Table 28: Major hiring constraints

% of businesses


Lack of qualified talent 55 57 55 53 22 16 41 52 42

High wage costs 31 31 34 40 51 53 20 32 27

Lack of business demand - - - - - - 12 4 24

Government regulations - - - - - - 4 3 19

General economic unknowns - - - - 4 7 2 - 27

Removal of Work Choices - - - - 20 22 - - -

Other 2 2 3 2 1 - 4 5 5

None really 12 10 8 6 3 2 29 2 -

Total 100 100 100 100 100 100 N/A N/A N/A


Multiple response

Table 29: Major hiring constraints

By industry sector

% of businesses



Lack of qualified talent 37 45 52 32 41

High wage costs 29 25 30 25 32

Lack of business demand 30 29 21 27 29

Government regulations 16 11 25 26 19

General economic unknowns 31 20 34 28 29

Removal of Work Choices - - - - -

Other 5 2 5 5 6

None really - - - - -

Not hiring at present 16 15 11 20 17


Multiple response

People

52

Wages growth almost inevitable

More than four in five businesses (83 per cent) said they expected wages to increase over the next 12 months. The average expected increase was six per cent. This is consistent with figures from March and October 2010, when businesses expected wages to rise after minimal increases during the global financial crisis.

Businesses refocus on salaries and bonuses

Despite concern about skills shortages, private businesses are making slightly less effort to position themselves as attractive employers. The number of businesses reporting they were planning changes to position themselves as a more competitive employer decreased from 82 per cent six months ago to 71 per cent in this survey.

Respondents most commonly used pay-related strategies such as bonuses (44 per cent) and higher salaries (30 per cent) to appeal to current and prospective employees. Employers are still offering non-financial inducements such as flexible working hours (27 per cent), working from home (11 per cent) and unpaid or lifestyle leave (nine per cent), but these benefits have declined in use since the October 2010 PwC Private Business Barometer.

Table 30: Expected change in wage rates during the next year

% of businesses


Increase 62 44 35 30 89 86 83

Average increase expected 7 5 8 8 7 7 6

Decrease/remain the same 6 15 42 53 11 9 5

Average decrease expected 5 4 7 8 N/A N/A N/A

Unsure/Don’t know 32 41 24 17 0 0 13

Total 100 100 100 100 100 100 100


44

3027

1511 10 9

4

30

0

10

20

30

40

50

60

Gre

ater

pay

for

per

form

ance

Com

pet

itive

sala

ries

Flex

ible

wor

king

pra

ctic

es

Pai

d p

aren

tal

leav

e

Wor

king

from

hom

e

Em

plo

yee

shar

eow

ners

hip

Unp

aid

or

lifes

tyle

leav

e

Oth

er

Non

ep

lann

ed

% o

f bus

ines

ses

Figure 16: Changes to position businesses as more competitive employer

People


53

Figure 17: Attributes that would attract new employees private businesses

Table 31: Planned changes to position business as more competitive employer

% of businesses


None really planned 36 38 43 57 67 68 19 18 30

Greater pay for performance 28 29 31 33 32 33 50 52 44

More competitive salaries 37 38 37 31 15 12 41 45 30

More flexible working practices 26 24 23 22 25 28 41 40 27

Unpaid or lifestyle leave 16 20 9

Allow working from home 19 11

Paid parental leave 17 15

Employee share ownership 7 7 8 6 4 3 12 12 10

Increased part-time options 12 12 13 - 9 10 - -

Other 2.3 3.2 3 1 1 - 4 2 4


Multiple response

Team spirit a plus for private businesses

We asked private businesses to nominate some less tangible attributes that allow them to compete against large businesses and enterprises in the employment market. Only eight per cent of respondents said competition from large enterprises was not an issue for them.

Most private businesses said the feeling of being connected to a team (62 per cent) was their greatest competitive advantage amongst potential employees. Half (50 per cent) said being part of a dynamic business was an attractive attribute, while 44 per cent nominated their flexible working arrangements as their key differentiator.

76

63 62 6157 54

7 7

62

4450

4336 36

6 8

0

20

40

60

80

100

Feel

ing

conn

ecte

dto

a t

eam

Flex

ible

arra

ngem

ents

Dyn

amic

, fas

tb

usin

ess

In-d

epth

ove

rall

und

erst

and

ing

Bro

aden

ing

skill

bas

e

Sha

pin

gb

usin

ess

succ

ess

Oth

er

Not

an

issu

e fo

rb

usin

ess

like

min

e

% o

f bus

ines

ses

Sep-10 Mar-11

People


54

Strategies to retain people

In line with the trend in this survey, private businesses also appear to have reduced their focus on retaining key staff. The number of respondents who explicitly said they had no retention strategies rose from five per cent in October 2010 to eight per cent this survey. In addition, the proportion of businesses using these two retention strategies was lower in this survey than in the previous ones.

Most private businesses (65 per cent) said they conducted regular career and salary reviews for key staff. Many also provided professional and personal skills training (62 per cent and 31 per cent respectively), and offered clear career advancement opportunities (35 per cent). Just under a third of businesses (31 per cent) said they offered work-life balance as a retention strategy.

Pay-related strategies were most prevalent in the distribution and wholesale (65 per cent) and property and construction (63 per cent) sectors. Business services firms made the most use of flexible business practices (40 per cent).

65 62

35 31 31

5 8

0

20

40

60

80

100

Regularcareer and

salaryreviews

Training anddevelopment of

work-relatedskills

Clear careeradvancementopportunities

Training anddevelopmentof general or

personal skills

Work-lifebalance

programs

Other No strategies

% o

f bus

ines

ses

Figure 18: Strategies to retain key people

Table 32: Strategies to retain key people

% of businesses

Sep-10 Mar-11

Regular career and salary reviews 78 65

Training and development of work-related skills 76 62

Clear career advancement opportunities 50 35

Training and development of personal or general life skills 45 31

Work-life balance programs 36 31

Other 3 5

No staff-retention strategies in place 5 8

Would rather not say 1 3


Multiple response

People

Private businesses are

making slightly less effort to

retain key staff


55

Table 33: Strategies to retain key people

By industry sector

% of businesses



Regular career and salary reviews 63 72 56 66 67

Training and development of work-related skills 57 73 59 57 63

Clear career advancement opportunities 26 49 30 32 45

Training and development of personal or general life skills 24 39 30 25 36

Work-life balance programs 23 46 25 31 34

Other 4 8 7 5 6

No staff-retention strategies in place 11 6 7 9 8

Would rather not say 4 1 3 2 3


Multiple response

People

56

Funding

DialAnAngel

56

57

Funding

Dial An Angel is the only national agency that has been committed to serving busy Australians and visitors to Australia since 1967.

Dena Blackman established Dial An Angel on 15 March 1967. No private home services agency existed at that time. Even the government-subsidised Emergency Housekeepers imposed a nine-month waiting period for home-based assistance. The fledgling Dial An Angel office was established at Lindfield on Sydney’s north shore. Since that time, the company has been recognised as Australia’s leading home and family care agency. It has become “a household name – a family business”, as four generations of Dena’s family have been involved in its operation over four decades. This was acknowledged in 2002 when Dial An Angel was awarded the NSW Family Business of the Year Award – First Generation. “We build the service to meet the need” became the company motto.

In 2003, Danielle Robertson – Dena’s third daughter, business partner and confidante – assumed the role of CEO for the Dial An Angel group. After spending 17 years in the family business, Danielle had made a significant impact on the company’s development and encouraged expansion in her role as financial director. Dena will tell you that her role as confidante and sounding board was priceless.

In her new role, Danielle has ensured that Dial An Angel has maintained its position as leader in this field of expertise. The group is decades ahead of any aspiring competitors.

dialanangel.com

58

Highlights

Investment plans Bank funding

About one-third (36 per cent) of private businesses surveyed planned to make significant investments in the short term.

One-fifth (21 per cent) of respondents are looking to banks to fund major investments.

Retail debt

The retail sector had the highest debt ratio at 27 per cent of assets.

Debt ratio

Private businesses have increased their average debt levels to 21 per cent of assets.

36% are making significant investments

Retail debt at 27% of assets

Banks back in favour

Debt levels on the way up

59

Funding

“We will be looking at a couple of major projects over the next 12 months, all of which will require an investment. We will fund these investments from our working capital, which has been our strategy in the past.”

Sue Jackson

Solterbeck

“Dial An Angel has recently invested in a major IT infrastructure database. We are also looking at renovating our Sydney office over the next 12 to 24 months, which is part of our strategic plan to merge our two Sydney sites. We will require some funding in the short to medium term and will look to the bank to secure this. We have a great relationship with our bank.”

Danielle Robertson

Dial An Angel

“We will start to grow our store numbers over the coming year. The first store will be funded through working capital and future stores using cash reserves. Our expansion plans are timed to coincide with an upswing in the economic climate, which we believe we will start to see within the next 12 to 18 months.”

Guy Griffiths

WOW Sight & Sound

60

Funding

Private businesses cautious on investments

Most private businesses are not considering significant investments in the near term. Only 36 per cent had plans to make significant investments within the next 12 months. Businesses in South Australia seemed more inclined to invest than their counterparts in other states. These results have remained largely static since March 2010, indicating businesses continue to be cautious.

Table 34: Planning major investments in the next year

% of businesses

Sep-10 Mar-11

Yes 36 36

No 58 56

Can’t say/not sure 6 8

Total 100 100


Table 35: Planning major investments in the next year

By state

% of businesses


Yes 36 34 - 38 44 35

No 57 58 - 53 49 61

Can’t say/not sure 7 9 - 9 7 4

Total 100 100 - 100 100 100


61

Funding

Banks in favour as economy recovers

Businesses planning a major investment in the next year were much more likely to seek funds from banks than from internal or other sources. Bank funding has remained the most popular source of cash for investments since March 2010, when private businesses started to recover in earnest from the global financial crisis and economic downturn. These findings lend weight to the view that businesses are seriously looking again at how to achieve growth.

Difficulties finding access to capital and credit – for some

Half (49 per cent) of private businesses said they had not encountered any recent or long-term difficulties in raising funds. However, the PwC Private Business Barometer revealed many businesses were finding it hard to access credit and equity capital. One in eight businesses (13 per cent) said they could not get any credit. Another 10 per cent of respondents had trouble finding the equity required for funding and a further 10 per cent felt they could not meet the cost of debt capital.

Table 36: Sources of funding for major investments in the business

% of businesses


No major investment plans/ Not sure 42 45 57 58 49 61 64 64

Already have funding - - - - - 3 4 4

Bank funding 9 9 8 4 7 19 19 21

Internally generated - - - 16 18 7 8 12

Private equity/venture capital 6 5 5 1 1 3 2 3

Existing shareholders 13 7 6 7 9 1 1 3

New shareholders 4 3 2 4 3 1 1 2

Combination of above 13 14 11 6 8 - - -

Broker - - - 3 3 1 0 2

Other 5 7 4 1 1 5 6 1

Don’t know/unsure 8 10 9 - - - - -

Total 100 - 100 100 100 100 100 N/A N/A


62

Funding

Table 37: Main difficulties encountered in raising capital

% of businesses


Haven’t encountered any recent difficulties 13 11 10 6 2 1 28 20 21

Haven’t encountered any difficulties for some time - - - - - - 25 30 28

Red tape and rates at banks - - - - - - 12 7 6

Availability of any credit - - - - 24 24 10 11 13

Availability of equity capital 12 11 9 7 4 4 7 7 10

Investment required in securing funding 22 23 21 25 15 14 4 4 8

Costs to the business of debt capital 14 12 18 24 37 39 3 6 10

Uncertainty in lending to my business type or getting approval - - - - - - 2 5 2

Haven’t had to raise funding for some time 26 28 28 25 15 14 1 2 1

Educating and marketing the business’s value 11 12 13 12 3 4 1 4 3

Ability to repay loans - - - - - - 1 1 1

Other 2 3 2 - 1 - 7 4 1

Total 100 100 100 100 100 100 100 N/A N/A


Private businesses increase borrowings

Private businesses estimated their borrowings added up to 21 per cent of total assets, up from 17 per cent in the October 2010 edition. This reverses a long-term downward trend, accelerated during the global financial crisis as businesses paid down debt and reined in expansion plans. It also reinforces that business activity is starting to pick up as owners and senior executives regain confidence in the market.

Of those businesses that provided a debt ratio, 21 per cent reported no borrowings and only 1 per cent reported a ratio of 100 per cent or higher.

The retail trade sector had the highest average debt ratio at 27 per cent, while business services firms had the lowest. Businesses in Western Australia had the lowest ratio at 18 per cent, while their South Australian counterparts had the highest at 24 per cent.

63

Funding

Table 38: Average debt ratio


Total borrowings to total assets ratio (%) 41 41 39 38 36 31 26 17 21


0

10

20

30

40

50

Tota

l bor

row

ings

to to

tal a

sset

s ra

tio (%

)


41 41 39 3836

31

26

17

21

Figure 19: Average debt ratio


By industry sector



Total borrowings to total assets ratio (%) 20 15 27 18 21

Base: Total businesses that knew their debt ratio (manufacturing n=123; business services n=61; retail trade n=82; distribution and wholesale n=89; property and construction n=73)


By state


Total borrowings to total assets ratio (%) 20 22 - 18 24 19

Base: Businesses that knew their debt ratio (NSW n=234; Vic n=191; Qld n=0; WA n=74; SA n=53; other n=32)

Private businesses estimated their

borrowings added up to 21 per cent

of total assets, up from 17 per cent in

October 2010


6464

GuyGriffithsCEO, WOW Sight & Sound

Business operations

65

Business operations

Since 2003, WOW Sight & Sound has grown from a single Queensland store to 15 locations throughout New South Wales, the Northern Territory, Queensland and Victoria.

Thanks to our awesome online store and many more superstores in various stages of development throughout Australia, all Australians can now get wicked deals in home entertainment, home office, cameras, car audio, mobile phones, DVDs and CDs.

If a WOW superstore hasn’t landed in your town or suburb yet, you can always jump on 1wow.com.au to get all the latest electronics at low prices. Best of all, we will deliver them straight to your home or office!

The WOW factor is what it’s all about. We are driven to deliver the greatest deals on all the best electronics in an exciting environment. Everything about our retail experience is designed to be fun. WOW Sight & Sound stores are full of helpful staff who know their stuff, plus a chance to interact with our products, listen to great music and see the awesome store fitout. The WOW experience is also on show at any WOW Brisbane Broncos game, and at Australia Zoo.

shop.1wow.com.au

66

Highlights

Top challenges Finding staff

Sixty-two per cent of private businesses reported one or more people challenges. Low margins and competitive pricing were growing concerns.

Forty-four per cent of private businesses said finding competent staff was among their top three issues.

New competition

More than one-fifth (22 per cent) of businesses nominated pricing as their main driver of competition for new business.

Planning review

More than half (54 per cent) of respondents said they now reviewed their business plans more than once a year.

38% worry about low margins

Pricing the main driver of competition for new business

Finding staff amongst the top three issues

54% review their business plans more than once a year

67

“We do have a business plan – we call it our Painted Picture. It articulates exactly what we want our business to look like in 2013, and details the objectives and strategies required to achieve our goals. We deliberately wrote Painted Picture in a way that ensured our plans were openly shared and very clear for everyone in the business.”

“I look at our strategic plan on a regular basis, usually weekly or fortnightly, just to see that we are on track. Having a formal plan has pushed the business forward quite quickly without losing the family values and ethos of the business. I share the overall picture with the staff, so that they have a very clear picture of my vision for the business.”

“As a retailer, we live by changing. We need to constantly evolve and constantly change what we are doing to be relevant to our customers. We are driven by two areas for change: technological innovation and the need to change for our customers. If we continued to do the same as we did three or four years ago, we would probably be out of business now.”

Sue Jackson

Solterbeck

Danielle Robertson

Dial An Angel

Guy Griffiths

WOW Sight & Sound

Business operations

68

Funding and people are common challenges

Private businesses most often reported struggling with funding and people issues in their day-to-day operations. Growing concerns were finding competent staff, reported by 44 per cent of businesses (up from 37 per cent in the last PwC Private Business Barometer), and competitive pricing, nominated by 38 per cent of respondents (up from 16 per cent).

Table 41: Key challenges faced by businesses

% of businesses

Feb-07 Aug-07 Feb-08 Aug-08 Mar-09 Aug-09 Feb-10 Aug-10 Mar-11

Securing the right talent: finding competent staff 58 59 51 39 16 14 50 37 44

Securing the right talent: staff retention 16 14 13

Developing the business and driving sales 36 18 24

Funding the business and cash flow 90 91 100 99 100 100 30 26 28

Overseas and domestic competition 26 25 28

Compliance and regulations 28 26 20 18 13 12 24 21 25

Cost control 18 16 18

Low margins and competitive pricing 57 56 54 51 16 21 17 16 38

Exchange rate fluctuations 8 3 -

General state of economy 7 9 15

Planning and forecasting 63 64 56 64 51 50 6 2 -

Customer service and retention, and meeting clients’ needs 10 10

Availability and price of inputs and price of raw materials 8 9

Good people management and looking after staff 5 12

Staff costs 5 9

Consumer and business confidence 12

Other 4 4 3 2 - 1 - 56 4


Multiple response

This increase is consistent with slowing sales and reduced prices leading to tighter profit margins.

More than one-quarter (28 per cent) of businesses said funding and cash flow were key challenges, while nearly one-fifth (18 per cent) nominated cost controls. Almost 30 per cent said competition – either domestic or international – presented a challenge.

PwC believes these results reflect the impact on businesses of the recovering Australian economy and robust dollar.

Business operations

69


By industry sector

% of businesses

Manufacturing Business services Distribution/ wholesale Retail trade Property/

construction

People 53 74 48 66 65

Funding 73 72 69 72 79

Business operations 60 39 55 61 57

Growth 46 47 58 43 37


Multiple response


By state

% of businesses

Total NSW Vic Qld WA SA Other

People 62 58 62 - 71 65 73

Funding 71 71 74 - 66 66 65

Business operations 56 59 56 - 49 60 53

Growth 45 46 44 - 43 45 45

Base: Total businesses (NSW n=343; Vic n=284; Qld n=0; WA n=98; SA n=77; other n=49) Multiple response

Businesses scrutinising strategic plans more carefully

Almost all (94 per cent) of private businesses told us they relied on a business or strategic plan to guide decision making. They review their plans more regularly than in previous editions of the PwC Private Business Barometer, with 54 per cent of respondents examining these documents more than once a year. One third (33 per cent) review their plans annually, while only six per cent review their plans every two years or more.

Businesses need to consider what a robust business plan should include. We believe some of the core elements of a business plan should address:

• Financial targets and key performance indicators

• A definition of the market

• What makes the business’s product or service different from those offered by competitors

• A statement about people, culture and values

• Marketing strategy

• How the company will grow.

Business operations

70

Plans help keep businesses focused

Private businesses are using business plans to develop strategies and grow rather than as a tool to obtain finance. Just one per cent of businesses said they primarily developed a plan to meet bank or credit application requirements – down from 75 per cent during the financial crisis in August 2009. More than one quarter (27 per cent) of businesses surveyed developed a plan to remain focused on goals while 23 per cent said a business plan helped them maintain growth.

Table 44: Frequency of business plan review

% of businesses


Continuously 2 13 15

Monthly 2 11 11

Quarterly 4 3 5 6 15 15 4 13 13

Six monthly 13 12 11 12 19 19 4 11 15

Every year 27 27 28 29 32 32 69 38 33

Every two years or more 17 16 17 16 9 8 14 8 6

No formal business plan 40 41 39 37 26 25 6 5 6

Total 100 100 100 100 100 100 100 100 100


Figure 20: Frequency of business plan review


10

20

30

40

50

60

70

80

% o

f bus

ines

ses

More than once yearly Every year Every two years or more

Business operations


71

Table 45: Primary reasons for developing a business plan

% of businesses


Keeps us focused on our goals 7 7 2 2 45 39 27

Makes good business sense 24 23 20 16 26 15 8

To support bank or credit applications 56 56 70 75 3 2 1

Advisor or accountant recommended it 6 5 4 6 1 1 0

Other 7 10 4 1 25 57 63

To identify opportunities and market changes 5 10 6

To maintain growth 5 29 23

To remain profitable 4 12 11

To remain focused 3 - -

To remain competitive 7 6

Due to obligations 3 1

Other reasons 8 11 17

Total 100 100 100 100 100 N/A N/A

Base: Businesses that currently have a business plan (n=804) Multiple response

Business operations

72

Table 46: Overseas revenue sources

% of businesses

Sep-10 Mar-11

New Zealand 42 45

United States 27 30

Europe 15 22

Southeast Asia 28 22

United Kingdom 14 20

Singapore 15 18

Japan 14 11

China 24 20

Pacific Islands 12 11

Indonesia 8 13

Malaysia 13 14

Hong Kong 3 8

Canada 6 10

Middle East 11 11

Africa 6 6

India 8 6

Other 18 10

Businesses that generate revenue overseas (n=207) Multiple response

Private businesses ranked pricing as the main driver of

competition for new business

New Zealand and United States lead overseas revenue sources

Of those private businesses that generated revenue from overseas sources, nearly half (45 per cent) did so from New Zealand and one-third (30 per cent) did so from the United States. The share of private businesses that generated revenue from South East Asia fell six percentage points (Southeast Asia includes the Philippines, South Korea, Taiwan, Thailand and Vietnam). This suggests some businesses have shifted their focus away from regional markets and towards culturally similar countries.

Business operations

73

Pricing the primary driver of competition

PwC Private Business Barometer respondents ranked pricing as the main driver of competition for new business. More than one-fifth (22 per cent) of businesses mentioned this issue, well ahead of increasing demand (17 per cent) and customer expectations and demand (14 per cent). However, the percentage of businesses that mentioned pricing is well down from the peak of 35 per cent in the March 2010 PwC Private Business Barometer. This would indicate that pressure on pricing has eased somewhat after the period of soft demand during the global financial crisis.

Businesses in transport, storage and communications ranked customer expectations and demand – and increasing demand – as their sector’s greatest drivers of competition. Finance and insurance companies recorded a similar result – possibly reflecting the rising demand for these services as Australian businesses look to grow following the economic downturn and global financial crisis.

Table 47: Main drivers of competition for new business

All industries

% of businesses


Pricing 12 11 12 15 28 30 35 23 22

Product innovation 14 14 15 14 12 13 11 8 9

Entry of offshore firms 7 7 6 6 3 2 3 5 4

Availability of HR talent 16 16 17 15 9 6 2 1 -

Customer expectations and demands 19 21 21 20 24 28 - 11 14

Margin compression 8 8 9 9 13 18 - 1 6

Other 4 4 2 3 1 1 49 38 40

Increasing demand 9 5 17

Maintaining growth levels 9 - 3

Increasing profits and decreasing costs 8 1 0

Maintaining service and quality 6 1 0

New technologies 4 2 0

Government policies 4 1 0


None specifically 21 19 19 18 10 2 - 12 4

Total 100 100 100 100 100 100 100 100 100


Business operations

74


Construction and property services

% of businesses


Pricing 13 10 5 14 51 57 32 16 19


Entry of offshore firms 3 3 2 - - - 2 5 4

Availability of HR talent 28 22 15 5 3 - 2 1 4



Other 5 6 3 7 - - 56 41 47



Increasing profits and decreasing costs 11 3 0

Maintaining service and quality 1 1 0

New technologies 4 1 0

Government policies 2 3 0


None specifically 36 40 39 49 - - - 19 7

Total 100 100 100 100 100 100 100 100 100

Base: Construction and property services businesses (n=103)

Business operations

75


Business services

% of businesses


Pricing 7 5 2 2 6 7 29 20 26



Availability of HR talent 38 36 37 40 25 19 1 6 0


Margin compression 6 4 2 1 1 7 - - 1

Other 3 2 1 2 2 2 58 43 47



Increasing profits and decreasing costs 10 2 -

Maintaining service and quality 9 2 -

New technologies 3 3 -

Government policies 4 5 -


None specifically 6 11 11 15 10 1 - 10 2

Total 100 100 100 100 100 100 100 100 100

Base: Business services businesses (n=85)

Business operations

76


Retail trade

% of businesses


Pricing 21 19 23 29 49 52 39 26 23



Availability of HR talent 3 5 6 3 2 1 - - 2


Margin compression 6 7 2 6 11 15 - - 10

Other 4 3 2 1 1 1 43 36 30



Increasing profits and decreasing costs 6 2 -





None specifically 20 15 12 6 1 - - 9 6

Total 100 100 100 100 100 100 100 100 100

Base: Retail trade businesses (n=122)

Business operations

77


Manufacturing

% of businesses


Pricing 9 11 16 18 31 37 38 25 21



Availability of HR talent 18 17 19 13 6 1 1 1 1



Other 1 2 1 5 1 1 43 29 37



Increasing profits and decreasing costs 7 - -





None specifically 22 17 1 1 1 - - 12 3

Total 100 100 100 100 100 100 100 100 100

Base: Manufacturing businesses (n=182)

Business operations

78


Distribution and wholesale

% of businesses


Pricing 19 16 21 25 34 35 38 27 25



Availability of HR talent 5 5 7 4 2 1 2 - 2



Other 5 4 2 3 3 - 43 36 30



Increasing profits and decreasing costs 5 - -





None specifically 18 17 8 9 - - - 5 1

Total 100 100 100 100 100 100 100 100 100

Base: Distribution and wholesale trade businesses (n=130)

Business operations

79

Business operations


All other businesses

% of businesses


Pricing 24 21

Product innovation 4 6

Entry of offshore firms 3 1

Availability of HR talent 0 -

Customer expectations and demands 12 15

Margin compression 1 4

Other 44 46

Increasing demand 9 18

Maintaining growth levels - 5

Increasing profits and decreasing costs 1 -

Maintaining service and quality 0 -

New technologies 4 -

Government policies 3 -

Other reasons 29 23

None specifically 11 6

Total 100 100 100 100 100 100 100 100 100

Base: Total agriculture, forestry and fishing; communications, transport and storage; finance and insurance; and other businesses (n=229)

80

Business demographics

Almost three-quarters (73 per cent) of businesses that responded to the May 2011 PwC Private Business Barometer were based in New South Wales or Victoria, while 12 per cent were based in Western Australia.

The largest single industry sector represented was manufacturing (21 per cent of businesses). Distribution and wholesale trade (15 per cent), retail trade (14 per cent) and property and construction (12 per cent) were also strongly represented.

Table 54: Geographic distribution of businesses

% of businesses

Aug-09 Mar-10 Sep-10 Mar-11

NSW 35 37 33 40

Vic 26 27 30 33

Qld 12 17 14 -

WA 8 10 12 12

SA 6 6 7 9

Other 13 3 4 6

Total 100 100 100 100

Base Total businesses (n=851)

Table 55: Distribution of businesses by industry sector

% of businesses

Mar-10 Sep-10 Mar-11

Manufacturing 14 20 21

Property and construction 16 17 12

Retail trade 14 15 14

Distribution and wholesale trade 12 11 15

Business services 18 10 10

Communications, transport and storage 8 8 9

Agriculture, forestry and fishing 5 5 5

Finance and insurance 3 3 3

Other 10 10 11

Total 100 100 100


More than half of respondents were business owners. Of those, about one-quarter (27 per cent) were the sole owner of the business, while the remaining 73 per cent were one of multiple owners.

Table 56: Business owner

% of interviewees


Business owner 44 42 34 52

Sole owner 22 21 27

Multiple owners 78 79 73

Total N/A 100 100 100

Base: Total businesses (n=851), business owners (n=444)

Business demographicsBusiness demographicsBusiness demographics

81

Business demographics

Almost three-quarters of businesses surveyed (70 per cent) were founded before 1996, while only 18 per cent had been founded after 2000.

Table 57: Distribution of businesses by year of establishment

% of businesses


Before 1996 11 73 67 70

Before 1950 9 9 9

1951–1970 15 11 11

1971–1980 14 13 14

1981–1990 21 21 24

1991–1995 14 13 12

1996–2000 48 12 13 12

After 2000 41 15 19 18

Total 100 100 100 100


Sixty one per cent of respondents had up to 50 full-time employees, while only 13 per cent had more than 100 full-time employees. More than half (53 per cent) had up to 50 part-time employees while 43 per cent had up to 50 casual workers.

Table 58: Number of full-time employees by business

% of businesses


No full-time employees 1 0

Up to 50 54 61 61

50–100 26 22 24

More than 100 19 16 13


Average full-time employees 179 180 173 170 156 151 81 65 63


Business demographicsBusiness demographicsBusiness demographics

82

Table 59: Number of part-time employees by business

% of businesses


No part-time employees 43 41

Up to 50 84 51 53

50–100 8 2 3

More than 100 8 1 1


Average part-time employees 23 23 34 39 37 40 37 12 10


Table 60: Number of casual employees by business

% of businesses


No casual employees 51 50

Up to 50 41 43

50–100 4 3

More than 100 2 2

Total N/A N/A N/A N/A N/A N/A N/A 100 100

Average casual employees 13 12


Business demographicsBusiness demographics

83

Private businesses in the survey turned over an average of A$27 million per year, while about one-quarter (26 per cent) turned over between A$10 million and A$15 million per year.

Table 61: Distribution of businesses by turnover range

% of businesses


A$8m–$10m 23 17

A$10m–$15m

63

32 24 26

A$15m–$20m 16 12 16

A$20m–30m 21 16 15

A$30m–$50m 14 12 12

A$50m–$75m37

10 6 8

A$75m–$110m 7 7 7

Total 100 100 100 100

Base: Businesses that provided turnover (n=771)

Table 62: Average annual turnover across all businesses

Average annual turnover (A$ million)

Feb-07 46

Aug-07 48

Feb-08 49

Aug-08 49

Mar-09 49

Aug-09 50

Mar-10 30

Sep-10 26

Mar-11 27

Base: Businesses that provided turnover (n=771)

Business demographicsBusiness demographics

84

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86

Acknowledgements

Roy Morgan Research

Roy Morgan Research, Australia’s best known and longest established market research and public opinion polling company, was founded in 1941 by Roy Morgan. Roy Morgan Research has grown to become a company providing a wide range of different research facilities. The company is 100 per cent Australian owned.

Roy Morgan Research has considerable experience in conducting all forms of research, particularly public opinion polling, attitude studies, social surveys, and large consumer and industrial market surveys. We are able to conduct a broad spectrum of traditional and market research methods to provide the best service to and help clients stay ahead of their competitors.

Today Roy Morgan Research has the most extensive research facilities in Australia, and is indeed, one of the most comprehensive market research companies anywhere in the world. Roy Morgan Research combines methodology, technology, experience and know how into one comprehensive integrated system. Techniques and services developed by Roy Morgan Research are now used in many countries throughout the world.

Roy Morgan Research employs over 350 full and part time employees in Australia and over 400 employees world-wide, with an annual turnover is more than $50 million. In Australia Roy Morgan Research is located in Melbourne, Sydney, Perth and Brisbane and internationally in Auckland, London, New York, Princeton and Indonesia.

www.roymorgan.com

Editor Group

Editor Group provides writing, editing, proofreading and video production services to business and government clients in Australia and across the Asia Pacific region. The firm has enjoyed a long association with PwC, assisting with the production of the Private Business Barometer and other high-quality thought leadership and business development publications. It also helps clients to create reports, case studies, brochures, websites, speeches, tenders and other forms of sales, marketing and investor relations material.

Editor Group was founded by Grant Butler, a former journalist at The Australian Financial Review, and now employs a team of expert writers, editors and producers based in central Sydney. The firm also provides a suite of writing training courses – spanning the basics of proofreading and grammar through to advanced writing skills for executives – and publishes PSF Journal for members of the Asia-Pacific Professional Services Marketing Association.

To learn more, visit editorgroup.com or contact Grant Butler directly. He can be reached at [email protected] or on (61 2) 8912 9501.

www.editorgroup.com

87

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