There have been comprehensive discussions around the recent interest rate rise and the ongoing effects this will have on mortgage holders and household budgets. However, limited advice has been given on how this will affect Australian Small Businesses. This rate rise has left a large minority of consumers with lower disposable income, which evidently will result in an indefinite number of services being affected.
So, what does that mean for each service? Investigations have advised there may be minimal impact of the food and beverage space. If, however, your services or products are categorised as ‘luxuries’ or ‘desirables’ then the impacts may be voluminous.
The rising inflation will not only increase borrowing costs but create difficulty in obtaining loans and sustaining growth. There is a considerable amount of businesses who are currently paying off a current line of business credit or planning to apply for business financing in the future. If enterprises are faced with greater debt along with other outside pressures the potential for business growth decreases dramatically.
SME business owners are now more than ever required to strategize wisely with the offerings of their services. Businesses will now need to prepare to adjust the products they offer to consumers or decrease overheads to compromise on the possibility of lower demands.
It is wise to take a fresh look at the situation and invest some time with your accountant, bookkeeper or business advisors. Review what strategies your business is currently implementing and consider new ways to create the most effective outcome for your SME.
Below you will find a number of tips we have sourced that you can put into practice:
- Review the cost of your business finance and current interest rates, and the configuration and mix of loans to ensure you are not paying more than you need to.
- Ensure excess cash is utilised effectively, including loan offset accounts to reduce the overall amount of interest paid.
- If possible, avoid having private debt (home loans) and instead look at possible refinancing strategies to turn debt into business and investment debts. You can’t get tax relief on your own home loan, so it can be advantageous to refinance a beneficiary loan in a trust, or a loan from an owner to a company to reduce your own home loan debt.
- Keep an eye on your accounts receivable and don’t become your customer’s bank. Look at further options to secure payment from your customers in a timely manner.