Every business is a boat on the economic seas. Although bigger boats have a better chance of riding out storms, the small ones can have just as much of a chance if navigation is mapped out with care. It isn’t always smooth sailing, that’s the risk you take when you cast off, but keeping the necessary precautions in place will keep you afloat.
Fluctuating interest rates, the ups and downs of the Australian dollar, Government decisions – and lack thereof – relating to red tape, tax, superannuation. Everyone has an opinion on the nation’s economic climate, and whatever one’s stance is, one thing is certain: business uncertainty often prevails.
Monitoring the health of Australian businesses through CreditorWatch, I see first-hand the ramifications of economic instability. I’ve seen too many businesses get caught out by a sudden drop of the dollar, a jump in interest rates, or a new tax amendment. The relationship between the nation’s economy and the health of a small business is indeed a close one, yet it’s not one that should spell the doom and gloom forecast by many.
I had a discussion with a colleague of mine, Siobhan Sellick, Director in the Business Services and Taxation division at Prosperity Advisers Group, about the state of the country’s economy and what it can mean for small businesses. She agreed that one of the key concerns relates to the lack of confidence surrounding Government decisions.
“I’ve heard many business owners voice concerns about the lack of certainty around what the government intends to do with taxes and changes to super, etc. All of which can have an impact on consumer confidence and ultimately sales,” Siobhan told me.
“It would be fair to say that most owners are still only cautiously optimistic about the current economic conditions, despite several quarters of good growth.”
We are currently seeing low interest rates, which is being highlighted as a positive development by many. Siobhan points out that, while low interest rates means the costs of paying back business debts is now lower, there are other less positive factors that come into play.
“These lower rates can also lead to additional borrowings to fund business expansion/capital works/capital acquisitions, which if done without the proper planning and too quickly can be the undoing of the business when interest rates rise again.”
An element of the economic climate often overlooked by business owners is that of the property market. An opinion that both Siobhan and I share is that a property boom does not always translate to improvements in SME performance.
“A business that has property on its balance sheet would see a vast improvement in its overall financial position, which creates confidence around borrowing more and spending more,” she said.
“On the flip side, a business that operates from leased premises and subject to annual rental rises may be experiencing higher rental costs where the higher property prices are putting pressure on the owners to generate a better yield.”
As with many elements of a business, precautions will save you in the long run. Remember: complacency is a killer. When you find yourself on calm waters, not a cloud in the sky, be sure to enjoy it. Just keep in mind that it may very well be the eye of the storm. Don’t get blindsided.
“Always act like ‘tough times are ahead’ at all times,” Siobhan said.
“When profits are growing and cash flow is improving don’t give into the temptation to upgrade without necessity. Always plan and manage your cash flow with a level of pessimism. This does not mean planning to fail or stopping growth plans.”