IN the face of economic uncertainty, businesses have been urged to get their houses in order.
A survey of private businesses has found that while businesses performed well in the past year they expect growth to drop.
The PricewaterhouseCoopers Private Business Barometer, compiled in collaboration with East & Partners, surveyed businesses with a turnover of between $10 million to $100 million.
PWC partner Greg Will said with the business community facing economic uncertainty and a credit crunch, it was "tempting to batten down the hatches and wait for the good times".
He warned the uncertainty was intimidating for a generation of business owners who may only have seen good times -- of those surveyed only 12.3 per cent were trading before 1995.
Mr Will said it was timely for businesses to do some self-assessment. They needed to ask themselves what areas of the business they needed to focus on and assess whether they had a competitive and sustainable cost base.
He said businesses needed to take steps to position themselves in case there was a downturn. These included:
• Building stronger cash reserves to offset the likely decline in working capital. This needed to be carried out before economic troubles arrived.
• Owners and managers needed to ensure a business had a balance sheet flexible enough to weather the storm and make the investments needed to build on its market position.
• Review capital expenditure, analyse leverage and consider mergers and acquisitions.
• Target areas where restructuring would yield greatest benefit.
• Outsource and leverage internal best practices to cut costs.
• Identify and convert to cash any non-core assets to help sharpen focus and strengthen the balance sheet.
Know what to cut
"When Australia last slid into recession, businesses that performed best understood the value they provided to customers and where their products and services ranked in relation to the competition," he said.
He said knowing what to cut was important. "For instance, many businesses that cut marketing expenditure lost market share while the best performers actually increased their advertising spend," Mr Will said.
He said top performing businesses would collaborate with customers and tailor products and services to meet changing requirements.
"In addition, they would manage pricing carefully to enhance profitability and position themselves strongly for the return of healthier economic times," he said.
The barometer indicated that private businesses were planning fewer investments over the next 12 months. "One third of the businesses surveyed said the global credit crunch significantly increased the cost of borrowing," Mr Will said.
"A further third said global credit tightening has prompted them to be much more conservative in their short term outlook."
East & Partners principal analyst Paul Dowling said he believed private businesses still had an optimistic outlook.
He said this was due to the effective risk management strategy of fixing lending rates, which ensured the business balance sheet could cope with extreme fluctuations.
"Although lending rates have come up, the effect of this on private businesses has been largely insignificant since the majority of current business borrowings in the SME segment are on a fixed-rate basis," he said.
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