New research shows CEOs of SMEs over-rely on profit to fund expansion
CEOs and MDs of Australia’s small and medium companies are relying on profits and earnings – rather than external funds – to bankroll growth and accelerate expansion, new research from the Australian Centre for Business Growth has found.
The Centre’s longitudinal study revealed that 86 per cent of the 265 CEOs surveyed, half of whom are heading up medium-sized companies, are relying on profits or earnings to fund future growth, rather than looking to external sources of funding such as venture capital, private equity, loans or grants. Less than half – 42 per cent – are using bank loans, 34 per cent are accessing government grants, seven per cent have secured equity investments, and none are considering crowdfunding or listing on the ASX.
Director of the Australian Centre for Business Growth, Dr Jana Matthews, said that despite growing far faster than the national economy, their over-reliance on profits to fuel growth can actually be inhibiting their growth.
“Companies that complete our Growth Programs are growing on average 12 per cent; which is four times faster than the Australian economy – and nine out of 10 are funding this growth with profits or owners’ assets,” Dr Matthews said.
“That’s how they funded growth in the past, and that’s how they’re planning to fund growth in the future.”
“But just imagine how fast these companies could grow if they had access to additional capital as they begin to scale up? Our longitudinal study has revealed a massive opportunity to drive growth in the Australian economy by backing our number one job creators: small and medium companies who have gone through a growth program, have developed a three-year plan, and are ready to grow.”
Dr Matthews commented on the federal government’s recent launch of a Business Growth Fund, noting that this fund comes at an opportune time for those small and medium Australian companies whose leaders know what they need to do to grow and have a plan to propel their growth forward.
“CEOs and MDs who have figured out their product/market fit, have revenue, have executive teams, know how to select and retain awesome people, have the right systems in place, a growth plan, and demonstrate the discipline of execution, are at the right stage for external investment,” said Dr Matthews.
“I hope the Business Growth Fund will enable more of these CEOs to receive the funds they need to grow.
“Australia needs more small and medium-sized companies to grow. The formula is quite simple: a well-built rocket, with a knowledgeable and skilled pilot, the right flight plan and rocket fuel.
“We need to teach our SME leaders how to lead and build strong organisations, develop solid growth plans, and then seek the capital needed to execute their plans and accelerate growth.”
The top five industries enrolling the Centre’s Growth Programs have been Manufacturing; Professional, Scientific and Technical Services; Construction; Retail Trade; and Healthcare and Social Assistance. 49 per cent of companies enrolling in Australian Centre for Business Growth programs have been in business for 15 years or more.
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About the Australian Centre for Business Growth:
Established in June 2014, the Australian Centre for Business Growth at the University of South Australia Business School provides CEOs and executives of medium companies (20 – 199 employees) and small companies (5 – 19 employees) with the knowledge and skills they need to develop as leaders, accelerate company growth and compete in a global marketplace. The Centre’s programs teach executives how to lead and manage growth via diagnostics, expert presentations, facilitated group
 Since its inception, the Australian Centre for Business Growth has been collecting data and completing a longitudinal tracking study of companies that participate in its programs. Over five years, 950 companies have participated in the Centre’s structured growth programs.