What’s my advice right now? Plan for inflation and stay ahead of potential change.

Plan for Inflation

You may have noticed that I’ve been a bit quiet on the breaking news front lately. 

The truth is, with so much speculation happening right now in Australia and the world, sometimes the best thing to do is to sit it out and wait until some of the hype and the misinformation has died down.

That said, there are definitely some lessons to take away from the current landscape. My advice to SME owners right now is to plan for higher costs, be aware of sudden changes, and prepare for a potential pivot.

The interest rate is starting to rise with inflation. Running costs will go up for your business. 

Looming interest rate rises in 2022 are something that we’ve been warning our clients about since as early as last April

Now the discussion about interest rates and inflation is well and truly everywhere, with the first rate rise in 11 years announced this week. This rise may have only been by 0.25 percentage points, but there are multiple rate rises expected this year and the largest rise is forecast to hit in June. 

These rate rises are expected to combat the rising inflation that all Australians are dealing with at the moment. Unfortunately, the steadily rising costs of everyday consumer products like food and petrol is a trend that’s expected to carry on throughout the year. 

Not quite sure how inflation works in Australia? I’ve explained it in a bit more detail here and here

Ultimately, inflation and interest rate rises are going to affect the cost of running your business, and you need to budget accordingly. We recommend seeking business advice to work out which areas of your business will require extra working capital during this upcoming tough period. 

An upcoming election means potential uncertainty & change. 

Compounding this general sense of uncertainty is the upcoming Federal Election. Until the votes are counted, it’s impossible to 100% predict the way that an election is going to go. 

One factor you should expect either way is a post-election debt crackdown from The ATO. If you currently owe outstanding tax debts, now is a good time to talk to your tax agent and start getting prepared for this.

No matter who you support politically or what result you’re expecting, it’s a smart idea to include a little bit of leeway in your business plans to prepare for potential change. All of the parties are currently proposing different fiscal and tax policies that could substantially affect your business if they end up becoming law.

The thing to do at this stage is to not make any assumptions. Instead, consider putting some ‘rainy day’ money aside in case you need to substantially re-budget or pivot in a couple of months’ time. 

If it seems like you do have to pivot – pivot quickly!

Once the dust does start to settle, you may very well find yourself facing down a big business change.  My advice is to get ahead of the changes once you start to get that gut feeling that they’ll affect you – don’t wait around to see how it pans out for everyone.

If you think you may need to lose some of your staff or trim some overheads, seriously, don’t drag your feet. You need to get ahead of change and pivot sooner rather than later, or you will have missed your chance. 

Consider the system shock that small businesses suffered when Covid-19 hit in early 2020. Of the SMEs that survived it, many only made it because they had seen potential trouble brewing overseas and prepared in advance for a quick pivot. The businesses that didn’t were left playing a permanent game of catch-up. Some simply ceased to exist.

It’s important to consider all of this when budgeting for 2022.

When you’re running a business, it’s fairly common to not get too hung up on external factors. After all, you have enough to worry about managing the everyday ins and outs of your business and your finances.

However, it’s a good idea to keep an eye on news that could affect your bottom line and then plan accordingly. Having some extra room in your plans for potential change or a quick pivot can save you from total disaster further down the line. 

Sure, it’s good to stay above all the ‘he-said-she-said’ that accompanies elections and economic changes, but that doesn’t mean you should stick your head in the sand either. Being aware of rising costs and insulating your business against potential shocks is just good common sense right now.

If you’re looking at re-budgeting to meet rising costs, or you’re keen to insulate your SME against potential economic change, then now is a good time to get in touch with one of our talented business advisors. They can help you navigate all of this with ease. 

The information in this article is of a general nature. It does not take your specific needs or circumstances into consideration. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

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