06/04/2009
Recessions, Flexibility and Your Business
During the past six weeks, the International Monetary Fund (IMF) and World Bank have been significantly downgrading their already bleak outlook for the global economy. Current data appears to indicate that 2009, will be the first year since World War II that the global economy contracts.
In Australia, the pace of economic activity slowed considerably in late 2008 and indications are that we will also experience a recession during 2009. However, the recession in Australia is likely to be much milder than in most G20 nations. Our recession will be milder mainly due to the Reserve Bank and Federal Government, both rapidly moving to an expansionary monetary and fiscal policy mix before real weakness in our domestic economy appeared.
Business owners must now take the next necessary steps to ensure that they not only survive the recession but prosper in the longer term. These steps involve businesses adopting a high level of flexibility in their operating strategy, due to the rapidly changing economic conditions.
Firstly, all businesses should be meeting with their bankers to develop clear communication channels, discuss future cash flow needs and assess debt levels.
Next, all operating costs should be reviewed, with a view to eliminating any unnecessary expenditure items that have been incorporated into the business during the last fifteen years of stronger economic conditions.
Cash reserves within the business should be established; the weak economic conditions may last longer than we all anticipate. Opportunities may arise for your business to grow during this period of deteriorating economic conditions that may necessitate increased capital expenditure.
Communication with customers should be enhanced to ensure that service and sales levels are maintained. Additionally, customers should be monitored to ensure that payments are received on a timely basis (insolvency practitioners are anticipating a surge in corporate failures in the coming months). Lastly, consider the use of part-time, casual or on-hire employees to cover periods of increased demand or particularly busy periods in your business.
Ross MacMillan holds a Bachelor of Commerce (Accounting, Finance and Systems) from the University of NSW, he is a member of the Institute of Chartered Accountants, member of the Securities & Derivatives Industry Association and a Fellow of the Financial Services Institute of Australia.
Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.
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