Private-company CEOs reporting a high- or medium-risk approach (45 percent) are also reporting notably higher optimism in the U.S. economy (17 percent) and projected revenue growth rates (10.6 percent) than their more risk-averse counterparts (8 percent optimistic; 1.9 percent growth rate).
“Several key issues cited by Trendsetter CEOs were similar across the board, such as lack of demand for products and services, lower margins, and weak or non-existent credit markets,” says Ken Esch, partner with PricewaterhouseCoopers' Private Company Services practice. “Most private companies, regardless of their structure or industry, are facing the same issues in the short term, but it’s how they’ll address these issues that will determine how they emerge from the economic downturn.”
Weathering the storm
In the short term, the same key issues are affecting most Trendsetter companies, including impacted demand and customer/consumer spending (76 percent), projected 12-month revenue growth targets (63 percent), profitability/gross margins (59 percent) and company valuation (49 percent).
To manage these issues, a majority of respondents are taking, on average, four or five actions, including negotiating better terms with vendors and/or customers (60 percent), finding more-competitive healthcare options (56 percent), cutting workforce to essential people (43 percent), finding lower-cost options in the supply chain (42 percent) or developing longer-term pricing plans for key customers and/or new users (41 percent).
Other actions included hiring highly-skilled professionals, technicians and sales executives (34 percent), developing strategic alliances and making better long-term purchases (30 percent) and expanding operations within the U.S. (28 percent).
Only 23 percent of companies are discontinuing one-or-more costly initiatives, 22 percent are cutting back inventory, 19 percent are cutting back costs of existing products and services or reducing offerings. However, 20 percent of international marketers report having expanded their operations outside of the U.S. during this economic crisis.
Dealing with a credit crunch
Approximately 37 percent of Trendsetter CEOs reported that the ongoing credit crisis has affected their company’s willingness to extend credit to customers. Of those, 75 percent are devising a more stringent credit review and analysis, 66 percent are negotiating for stricter terms and 59 percent are only willing to extend credit to the best or most strategic customers. Less than half of these respondents (49 percent, or 18 percent of all respondents) are moving certain customers to prepay or COD payments.
Despite these challenges, 76 percent of Trendsetter companies say they are not planning to seek additional financing within the next 12 months; 17 percent of respondents are planning to seek additional financing, seven percent are unsure. Of those looking for additional financing, 68 percent are planning secured financing, 37 percent are looking for long-term bank borrowing, 29 percent are seeking restructuring of debt and an additional 29 percent are looking for angel investors.
“Many private companies are pulling back due a lack of demand for products and services,” says Esch. “The majority of companies are moving toward a defensive strategy in managing their cost structures as opposed to embarking on new growth plans.”
Companies core risk strategy
The majority of trendsetter private growth companies (54 percent) positioned their firms’ core risk strategy in this economic and credit crisis as lower risk, marked by notably higher activity in two areas: cutting workforce to essential people (55 percent, 25 points higher than other respondents) and discounting one or more of their companies costly initiatives (29 percent, 13 points higher than other respondents).
Approximately 45 percent of respondents report a high- or medium-risk core strategy, marked by hiring highly-skilled professionals/technicians or sales executives (49 percent, 28 points higher than the low risk group) and expanding operations within the U.S. (34 percent, 11 points higher).
“Despite the recession, the companies that are willing to take risks and strengthen their relationships with customers have a real opportunity to facilitate a better outcome for themselves,” added Esch. “The risk-takers are embarking on a strategy to separate themselves from the competition as the economy recovers.”
Despite equally pessimistic views of the U.S. economy, the high/medium risk group of Trendsetter CEOs are projecting 12-month revenue growth of 10.6 percent – more than five times that of their low risk counterparts (1.9%) – and are more positive about their own companies’ growth over the next 12 months (71 percent versus 47 percent).
 | Lower Risk | All Others* |
| (118) 54% | (101) 45% |
| Business outlook, next 12 months | | |
| | |
| 8% | 17% |
| 6% | 17% |
| 1.9% | 10.6% |
| 14% (39%) | 22% (52%) |
| 19% | 41% |
| 11% | 17% |
| 42% | 66% |
| 16% | 34% |
| 15% | 29% |
| 16% | 28% |
| 5% | 13% |
| | |
| -24% | -12% |
| +3% | +12% |
| -6% | -4% |
PricewaterhouseCoopers’ Private Company Services is an integrated team of audit, tax and advisory professionals who focus on the unique needs of private companies and their owners. Within the practice, our professionals concentrate on the needs of manufacturing, retail, wholesale and distribution, construction and food and beverage companies, as well as the needs of law firms and other professional service organizations. They are committed to delivering cost-effective, practical solutions and proactive services with the quality clients expect from PricewaterhouseCoopers. For more information about PricewaterhouseCoopers’ Private Company Services, visit www.pwc.com/pcs.
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across out network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
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For more information about Barometer surveys, including recent economic trend data and topical issues, please visit our web site: www.barometersurveys.com.
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