After nine successive rate hikes by the Reserve Bank of Australia, businesses – whether with loans or not – are feeling the impact. Business sentiment is soft across all industries. While many continue to raise genuine concerns about the availability of workers and enduring skills shortages, some are starting to cut staff amid a slowdown in trade.
Business confidence remains weak throughout NSW and across all industries, according to the latest Business NSW Business Conditions Survey.
Close to 30% of businesses consider themselves to not have enough business activity to survive 2023. The rising cost of doing business is regarded as the biggest barrier to operating at full potential.
The Business Conditions survey revealed the eight main concerns businesses have about costs are:
- Energy
- Insurance costs
- Taxes, levies
- Wages
- Supplier costs
- Transport costs
- Rent
- Loan repayments
123 Financial Group director and small business consultant Jennifer Richardson said that as costs rise, it’s more important than ever that businesses use real-time accounting.
“It’s important to understand your numbers and what it’s costing you for all these things but in real-time. It’s no good finding out six or 12 months later,” Ms Richardson said.
“The other overarching aspect is to set some key performance indicators (KPI). So it might be that you need to reduce costs by 10% so then you should compare your real-time costs to your KPI on an ongoing basis.”
1. Energy
Concerns about the impact of rising energy costs on business have intensified across all indicators as the energy market has become volatile.
To reduce costs, it will be crucial to first look at your supplier.
“Ring around and spend some time looking to see if you can get a better deal on energy,” Ms Richardson said.
“Also, look to reduce your electricity and gas usage where you can, so it is good to look at investing in some more efficient appliances. Always seek out some help and expert advice to deal with these things.”
A recent My Business Energy report revealed that the most used sources of energy advice to businesses were among those they found least useful, while the most useful sources of advice were among the least used.
Business/engineering consultants and peak bodies were seen as the most useful sources of advice (more than 50% report them being very or extremely useful), but fewer than 15% of businesses had sought advice from those sources.
2. Insurance costs
When it comes to insurance, it is important to be proactive, especially during uncertainty, according to Ms Richardson.
“Procrastination is the killer of every business. When it comes to insurance, you should always do an audit on what you’re covered for and what insurance you have.
“If you are overinsured, then it’s a good opportunity to look at reducing your insurance level because quite often we do set and forget with our insurance,” she said.
“Have a look to see if the cover that you have is appropriate to your current needs and see if you can obviously negotiate and move somewhere else that best fits the business.”
3. Taxes
It will also be important to pay attention to any changes in taxes.
As far as income tax goes, make sure that you’re not missing out on deductions through poor record keeping because that’s the one that will get every small business, Ms Richardson noted.
“Particularly if they don’t keep track of where they’re spending their money or they’re using their own private funds and not moving it into the business account,” she said.
“So make sure that you have your record keeping in place to ensure that you’re not missing out on deductions.
As far as state taxes go, businesses can spend some time making sure that they are compliant.
“Quite often, there is a way to reduce them depending on certain classifications,” Ms Richardson said.
“Businesses should also look out for any grants available. Whilst that’s not reducing the cost, it helps fund it, so have a look to see if there are any grants around or any programs that you can be part of that will definitely help make it easier for the business.”
4. Wages
With rising labour costs and major changes in the workplace, wages have been a growing issue for businesses.
Ms Richardson said the first thing employers need to do is to have a good hard look and review wages across the organisation.
“We can look at the efficiencies that you can get by setting systems and procedures in place,” she said.
“Certainly look at any outsourcing or automation for manual tasks. If it’s administration, you can quite often outsource to another organisation or even outsource out of the country to find more efficiencies.”
“But also look at the productivity of your staff as well. If they’re not particularly pushed, and I’m not saying to overload, then people will spread five hours of work out to fill in eight hours of a day if they don’t have work or programs in place to ensure that they meet those efficiencies. That is one of the biggest issues that we find.
“The other thing we find is that having people doing the wrong tasks so you may have somebody who is on a higher hourly rate doing lower rate tasks and that, of course, is inefficient for the business and will affect wages.”
5. Supply
Since the pandemic, supply chain disruptions have become increasingly common and severe, causing significant challenges for businesses of all sizes.
Businesses can manage supply chain issues by adopting a proactive and strategic approach that prioritises resilience, flexibility, and collaboration, according to Ms Richardson.
Businesses should conduct a thorough risk assessment to identify potential supply chain disruptions and develop a plan to mitigate those risks. This includes identifying alternative suppliers, diversifying supply sources, and establishing contingency plans to address potential disruptions.
“Now is a good time to assess all your suppliers to see if you are getting the best price and quality control because that has a big impact if it’s not coming quickly enough or that it reduces your own profitability,” she said.
“Look at suppliers and see whether they can offer an alternative to what you are buying with no impact on the product that you produce.”
6. Transportation
Transportation costs are a significant expense for many businesses, especially those that rely on the transportation of goods or services.
Ms Richardson said businesses could consider negotiating lower transportation costs with suppliers, especially for high-volume or regular shipments. Engage in discussions to see if there is a way to optimise the transportation process and reduce costs.
“If you’re doing lots of small orders, it can be quite expensive, and so look at that supplier as a whole and see if they still have the right supply for you,” she said.
“Make sure the costs are less of an impact, but of course, if it’s your own transportation costs, look at the efficiency of the vehicle that you’re using.
“Sometimes you’re better off to do the maintenance to increase the efficiency of your own products and minimise your own costs, so businesses should assess their delivery routes, streamline the transportation process and improve shipment visibility, and reduce errors and delays.”
7. Rent
Rent is one of the biggest expenses for many businesses, and it can be a major drain on cash flow. Whether a business operates in a commercial space, office building, or retail storefront, rent costs can be a significant portion of the budget.
“For businesses, if it’s an office environment, ask if you still need all that space if your employees are working hybrid and is there a way to supplement some of the space,” Ms Richardson said.
If the premises is a factory or a production setting, then it’s worth looking at negotiating with your landlord and looking at ways to improve the efficiency of the space and assessing how it can fit your evolving business needs.
8. Loan repayments
As the cost of business continues to rise, the challenges of loan repayments will continue to impact many businesses.
Ms Richardson said it was important for businesses to take proactive steps to manage their loan repayments.
“If it’s a fixed rate, then there is not much you can do. But if it’s a variable rate, then you should look to refinance,” Ms Richardson said.
“You know lenders will always offer better rates for new customers than they do for existing customers.”
By refinancing, a business can negotiate lower interest rates or extend the repayment period, which can reduce the monthly payment amount. However, it’s important to carefully consider the terms of the refinanced loan and ensure that the business can meet the new payment requirements.
Increasing revenue or reducing expenses can also help a business free up more cash flow to put toward loan repayments.
In some cases, a business may be able to negotiate with the lender to modify the terms of the loan.
“Always look at negotiating. You should always ring your lender, and having a half-hour phone call to lower your interest without having to refinance is a great step,” Ms Richardson said.
“You should always assess your history and research what’s in the market so you can go in with all the information you need and negotiate well.”
.jpg?height=496&width=1920&ext=.jpg)