These are challenging times
Right now as a small or medium business owner it feels like the last five years have been relentless. A big roller coaster. Sure, some highs. But a lot of lows. And a lot of stress.
Across many industries that are subject to discretionary spending, the Covid years of 2020, 2021 and 2022 actually spiked demand significantly as consumers had significantly more discretionary spending power, thanks to factors including:
- Record low interest rates
- Government support, like JobSeeker to individuals, and JobKeeper and substantial grants to businesses
Fast forward to mid-2024, and we’ve now been “back to normal” for about two years. But it’s not really back to normal: the cash that governments globally flooded the economy with as a response to COVID created hyper-inflation. As a result, by the end of the 2022 the cash rate (RBA interest rate) was over 3% and has continued to climb since, now sitting at 4.35%. Inflation is not yet under control, meaning it could go higher.
For context, pre-COVID the cash rate was 0.75%. That was the normal.
The unfortunate reality for many small businesses, is that interest rates as a tool to tackle inflation is very blunt. It does discriminate: it hits businesses that rely on discretionary spend proportionately much worse; essential industries like housing, food and energy are less impacted (and for what it’s worth, also the main culprits in persistent inflation).
I own a discretionary spend business – what do I do?
Firstly, I feel for you. I am in the same situation and so I know how very stressful – and sometimes genuinely distressing – it is. Trying to stay focussed and positive when you’ve not only got your own personal financial position at risk, but the livelihoods of staff.
The key theme here, is to control what you can, and let go of what you can’t. With that said, here three tips: a few suggestions:
- Cashflow is king. If you sense the cashflow position of the business is worsening, even if the profitability of the business appears to remain strong (or at least OK), you need to work out why!
- Expense management: the good times of 2020 – 2022 lent themselves to some perhaps less-than-diligent spending across the board. It’s now time to put a magnifying glass to your profit and loss report and determine where it’s possible to rein things in a bit.
- Stay nimble: Whether it’s your approach to buying more stock, a new lease, or getting access to a new service, do your best to minimize your spend and potential liability. For example, this might mean that for a new service provider you engage with an external provider who offers a short notice for termination period, rather than taking on a new internal staff-member.
There are just a few tips. The reality is that this situation, for owners or senior managers of many small-to-medium sized businesses at the moment, we’re needing to do a lot of work to protect ourselves and give our businesses the best chance of succeeding.
Help me
If you could do with some help, email Tom, who is a co-founder and executive director of a well-known Australian retail business, to have a free 20-minute chat about how he might be able to help you navigate through this challenging period.
(Your enquiry and any information you share will be kept totally confidential.)
