With the RBA having raised the official cash rate for its tenth consecutive month, many SMEs are now seriously feeling the pressure.
While Governor Philip Lowe has suggested that inflation has already likely peaked, the prospect of a pause to rate increases is still not yet on the agenda.
This is bad news for SMEs as persistently high inflation translates to further cash rate hikes and higher mortgage and business loan rates. This will add to already strained funding pressures, while also weighing on sagging consumer demand for goods and services.
To compound these challenges, house valuations continue to slide lower which further impacts the borrowing capacity of business owners who utilise or require collateralised loans to fund their business operations.
This, combined with lingering supply chain constraints, and rising wages, input costs, commercial rent and energy rates, is creating a perfect storm for SMEs.
This calls for decisive action from business owners to safeguard their business, and there are a range of aspects to consider.
Considerations for SME business owners
Manage your cash flow
Cashflow is the lifeblood of SMEs. Without it, businesses simply can’t operate. As such, one of the first steps to take is to monitor, review and optimise your revenue and expenses.
It may be helpful to develop an updated cash flow forecast, conduct a review of unnecessary expenses which you may not require, or even introduce new policies to encourage faster receivables.
Debt restructuring
Another important aspect to look at is your capital structure, specifically your debt. While dependent on personal circumstances, you may be able to negotiate loan terms with your lender or consider refinancing.
You may also wish to consider alternative funding sources including from non-bank lenders, however it is important to be aware of the risks.
Price increases
Many business owners are also increasing the price of their goods and/or services to absorb rising expenses, but a decision should only be made after careful consideration, analysis and planning.
Diversification
While it may seem counterintuitive in the face of adversity, investing resources into new products, services or markets can significantly improve your businesses financial health, while also boosting its competitive advantage.
Seek professional help
Before making any significant decisions which could have serious consequences for you and your business, it may be beneficial to seek independent professional advice from an accountant or financial planner.
How Falanga & Co can help
At Falanga & Co, we are passionate about helping small businesses succeed, and we are here to provide you with a clear oversight of your business.
From restructuring, to asset protection, cost reduction, and cash flow forecasts, we offer an array of services to help you make the right decisions so your business can thrive.
Please get in touch today if you have questions or concerns about how your business might be impacted.
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