More than half of Australian mid-market companies are not properly prepared for persistent fluctuations in business conditions, according to the inaugural Commonwealth Bank Future Business Index.

With one-third of businesses believing that conditions will decline over the next six months, a significant proportion of the market was also found to not have a risk, business continuity or succession plan in place.

The Index is a bi-annual analysis of the views of financial decision makers in companies with a turnover of $10m - $100m, measuring their outlook for business conditions, challenges and opportunities, projected revenue, and how prepared they are to navigate future volatile conditions.

Only around one-quarter (26%) of businesses said they were prepared because they had a strong financial position, while 22% said they had strategic plans in place. QLD was home to the highest proportion of businesses (52%) that were well prepared for future conditions. Of the sectors, business services were the most prepared (57% stating they were well prepared) whilst the least number of companies in the mining sector (21%) believed they were well prepared.

Overall, the outlook for the next six months remains pessimistic, with the inaugural Index registering a score of -0.3. Businesses operating in retail (-7.0), manufacturing (-8.0) and wholesale trade (-13.3) maintain the most negative outlook, with Health & Education (17.3) and Business Services (15.0) more favourably positioned as a result of heightened expectations for revenue and with preparations in place to weather a future downturn in conditions.


Mixed Picture for the Australian Economy

The new Index reveals a mixed picture for the Australian economy, with significant divergences not only across sectors but also States and individual business size, according to Symon Brewis-Weston, the Commonwealth Bank’s Executive General Manager of Corporate Financial Services.

“The outlook suggests that in general, mid-market companies are not confident about their position in which to weather uncertain business conditions in the near future,” said Mr Brewis-Weston.

“The general lack of confidence we are seeing may result in a low appetite for risk and capital investment over the next six months. Despite this, activity amongst Australian businesses looks set to continue to grow, albeit at a slower pace and in certain pockets of the economy. For those companies which take a proactive approach to management and planning, opportunity is still very much alive.”

Projections for revenue and profit remained relatively upbeat, with close to half of businesses (46%) expecting an increase in revenue and 40% seeing this flow through to an increase in profit. A greater proportion (49%) of larger companies with a turnover of $50m - $99m expected an increase in profit, with over half of those companies operating in the business services sector anticipating an increase in both revenue (54%) and profit (53%). Unsurprisingly, a greater proportion of the retail sector (39%) expected their profit to decrease.

Although the outlook for revenue was more favourable, this will be impacted by input costs. Over half (54%) of businesses expected an increase in salaries and wages and 53% were anticipating an increase in operating costs. Three-quarters (75%) of businesses believe that rising energy costs will impact them over the next six months, followed by rising fuel costs (66%), increases in wages (61%) and the fluctuating Australian dollar (60%).