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What rising interest rates will do to business cashflow Posted on August 12, 2022
It is likely Reserve Bank of Australia cash rate will rise to circa 2.5% by the end of the 2023 calendar year. This will put significant pressure on small business cash flow. Business owners need to act now to stay ahead of the game.
The reason for the interest rate increase is largely the current national rate of inflation of 5%. Low unemployment figures and strong consumer spending are driving the upswing.
This means that in the 2023 financial year, business owners must make 5% more profit to effectively be in the same position last year. If you’re sitting still, you’re effectively going backwards.
Inflation increases the cost of goods, services and wages so we are urging business owners to talk with their financial teams NOW to ensure they can keep pace with increasing expenses.
Here are some important strategies:
- Review your pricing – business owners need to pass on cost increases. Absorbing them is unaffordable. Smart business owners will craft a pricing strategy that is palatable to their consumers, as opposed to a blanket increase. Your accountant can help you to select the right product lines and margins to target.
- Pay down your debt – your financial structure needs to be paying down your business debts and tacking those interest rates head on. Profit in, debt down.
- Data analysis – your data systems should be able to inform the impact of further interest rate rises down the line. Conduct a sensitivity analysis with your accountant and know what could happen before it actually does. The best kind of risk management is risk prevention and data systems are the closes thing anyone has to a crystal ball.
If you would like to talk about your business cashflow position and the impact of interest rates to your bottom line, contact our team for a complimentary Discovery Session today.