A quarter of private companies say we’ve already hit the bottom: survey

An impressive 26% of private companies say the Australian economy has already hit the bottom, according to a survey of 220 private companies by accounting firm KPMG.

And while most companies are bracing for a very tough 12 months, almost half of those surveyed say Australia’s medium-term growth outlook if good or very good.

Don Abell, partner in KPMG’s middle market advisory division, says the survey shows that private companies have weathered the financial storm of the last 12 months far better than many commentators believed.

“There’s no denying that we are in a downturn, they all acknowledge that. They are just not feeling it as badly as we might have believed,” he says.

While a quarter of those surveyed expect revenue to fall in the next 12 months, more than half expect sales to grow by 5%. Those that are feeling the pinch are blaming falling consumer spending, rather than issues with their own business.

Indeed, most private companies appear to have already taken action to shore up their company to get through the downturn. Common actions taken in the last 12 months include including renegotiating supplier contracts (34% of respondents), refinancing existing debt (27%), modifying their business plans (73%), reviewing their workforce skills mix (50.5%), trimming costs (62.5%), changing business processes (53.5%) and introducing new products (36%).

“There is considerable optimism in that they believe they are well structured, they have taken the actions they need to take and there is quite a number of them sitting back and looking for opportunities to pick up stressed businesses,” Abell says.

While 52% of those companies surveyed have reduced headcount in the last 12 months, most have also used a range of other options including annual leave and wage freezes, and 43% of respondents have cut labour costs.

“It hasn’t been a slash and bash – they have looked at ways to try and keep their people together.”

Abell says this has a lot to do with the fact that 30% of respondents are still finding problems accessing highly-skilled people.

While there has been a lot of attention focused on those small companies that are having difficulty accessing funding from the banks, the problem might not be as bad as first thought – just over 60% of respondents believe the cost of finance has little or no impact on their business.
However, it should be noted that many of these businesses probably aren’t looking for finance from banks right now, given 42% of respondents had cancelled major projects or business expansion plans, compared to 15% in 2008.

But the lack of credit problems may indicate that private companies have heeded the lessons of the 1990s downturn, when high debt levels caused many businesses to go to the wall.

While the survey did not look specifically at this issue, Abell says the fact this lesson has been well-learned by private companies and forgotten by some public companies (such as collapsed firms like MFS, ABC Learning and Allco) may have something to do with the fact that entrepreneurs in private companies tend to be involved for far longer than public company executives, who have far higher turnover.

Perhaps the most exciting result from the survey from the point of view of the Australian economy concerns the respondents’ outlook for the next one to five years. While all respondents are braced for a tough 12 months, just over a quarter of businesses believe the Australian economy is past its low point, while 80% said the long term outlook (five years and beyond) was good or very good.

Abell says this emerging sense of optimism should spur all entrepreneurs to start looking towards the recovery.

“The downturn provides enormous opportunity for companies to just take breath and look around and see how they are placed,” he says. “They need to look at their business strategy. Are their companies that they might merge with or take over to enhance their business going forward?

“Get your top team together and start to focus on the basic business fundamentals – your product, your customers and where you believe your company will be as we come out of this downturn.”