Businesses expect a better trading year in 2014 amid strong profits and a reduction in operating costs.

The Commonwealth Bank future business index, which gauges the sentiment of mid-size businesses with a turnover of $10 million to $100 million, suggests businesses are experiencing a sharp increase in confidence.

The index was 17 points in the December quarter, its highest level since the survey began in September 2011, and up from 10.8 points in the previous three months.

"The vast majority of businesses are anticipating a more prosperous year ahead," said the bank's general manager for corporate financial services, Michael Cant, when the report was released on Thursday.

"Notwithstanding the buoyant sentiment .... there remains a level of conservatism as businesses continue to focus on managing costs."

The survey found the top three challenges facing business are weak consumer confidence, a falling Australian dollar and uncertainty about government policy decisions.

There are also increasing concerns about skills shortages.

However, 77 per cent of organisations expect a better performance in 2014 compared with 2013.

The survey's revenue index for the next six months jumped to 41 points in the December quarter from 25 in the September quarter, the profit forecasts index increased to 27 from 15, and the operating costs index eased to 29 from 33.

Commonwealth Bank chief economist Michael Blythe said the sharp improvement in revenue and profit expectations was quite encouraging.

"We're seeing this improved sentiment flow through to other important areas, such as an enhanced appetite for risk and an expected increase in capital expenditure and headcount," he said.