How is the future looking for Australian firms?

The Australian economy might have performed well compared to many other developed nations, but it seems that the cracks are finally starting to show. Businesses are facing the threat of declining sales and rising job losses, leaving them understandably wary about what the future holds.

How are businesses faring?

NAB has released its January Business Survey, which shows just how companies are reacting to these difficult circumstances.

Although confidence levels increased slightly last month, the overall reading is still lower than the long term average. Some sectors in particular are more affected than others, which is likely to be the impact of weaker commodity prices and depreciation of the Australian dollar.

Purchase costs are a particular area of concern, with growth expanding 0.9 per cent during the three months to January. This is above the average seen since the global financial crisis and is likely to lead to financial pressure for some businesses.

However, there has been some relief for the margins achieved by firms, as final product prices increased in January. Retail prices, on the other hand, eased and recorded no growth over the course of the month.

What can be done to improve their finances?

While there's not much that businesses can do about factors outside of their control, they can nevertheless take positive steps to improve their bottom line.

Energy is one area that firms might want to take a closer look at. It can comprise a large proportion of their annual budget, unless of course steps are taken to reduce consumption.

The latest Australian Energy Statistics from the Bureau of Resources and Energy Economics (BREE) showed that consumption fell slightly in 2012-13 across the country, even though the economy continued to grow. While some sectors used more energy - namely mining, manufacturing and commercial and services sectors - this was offset by a fall in use for electricity generation.

Using less energy is one approach that businesses can take. The other option is to switch to a more competitive tariff that means they pay less for gas and electricity to start with.

What does the future have in store?

Companies up and down the country will no doubt be hoping for a more profitable future, as well as improvements in the wider economy. Steps were recently taken to reduce the official cash rate, which should go some way towards making sure this is the case.

However, with everyday costs rising, businesses simply can't wait and see what happens to their bottom line - they'll need to take action to ensure it remains intact.

Posted by Richard West