- Business owners are at a critical time to impact the recovery and future success of their business.
- There are four key disciplines business owners should focus on in the short- to medium-term to ensure their businesses do not suffer financial distress.
- Business owners should regularly review their cash flow and cash commitments.
As business owners emerge from COVID-imposed restrictions and experience the withdrawal of government support packages, a range of issues will shape the next phase of recovery.
Business owners have already had to deal with rising prices, growing wages, staff shortages, staff expectations and supply chain issues, and these issues will continue with those at the helm needing to adapt quickly and be ready to resolve any unexpected challenges.
There are four key disciplines business owners and directors should focus on in the short- to medium-term to ensure their enterprises don’t suffer.
1. Cash is king
With any strong business you will usually see an acute attention to detail in regard to cash flow and forecast. Prudent business owners will usually hold a sufficient cash buffer (normally six to nine months) in order to protect the operation from any unexpected challenges.
Business owners should regularly review their cash flow and cash commitments, and focus on managing expenses and collecting revenue promptly. This will enable a business owner to pivot quickly when unexpected challenges arise.
2. Rising employee cost and staffing shortages
In the recent federal budget, the Liberal government forecast unemployment would hit 3.75% in the coming financial year – the lowest in more than 50 years. Coupled with changing work expectations from employees – like working from home and the desire for more flexibility – there will continue to be significant competition for talent in most industries in Australia.
The impact of such competitiveness will see a natural increase in wages and staff benefits, such as better parental leave.
It’s essential that business owners undertake a comprehensive review of their current employment practices particularly in regard to recruitment and calculate what they can afford. To stay ahead of the curve, it’s helpful to investigate competitors and see what benefits they are offering. A consistent and relevant training and development program is also a must.
“It’s essential that business owners undertake a comprehensive review of their current employment practices particularly in regard to recruitment and calculate what they can afford.”
3. Supply chain issues
We have already seen significant supply chain problems in the construction industry and this challenge will continue in the medium-term. As such, business owners need to lock in commitments from their suppliers to avoid adverse impact on their business. They should engage with their suppliers and hold an open and frank discussion about how the supplier proposes to deal with supply chain issues and look to commit on pricing under their contractual obligations.
4. Cost of capital
Mainly driven by the low interest rates, the economy is currently experiencing significant availability of capital either through debt or equity. However, it is widely recognised that current and upcoming inflationary pressures will result in interest rate rises causing businesses that have stretched their lending to experience cash flow pain.
Business owners should review their current capital requirements and determine whether to test the market for better pricing and better terms.
Now is also the time for business owners to take a conservative view with respect to debt. A finance facility review would be worth undertaking to assess this position.