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3 minute read
We’re all being bombarded with news of economic shifts over the last several months. Rising interest rates, cost of living and inflation along with occasional nods to the dreaded R word. But what does this mean for businesses and their employees and what can you do to make smart decisions?
Economic winds have changed
The RBAs May economic outlook noted that while inflation may have peaked already and unemployment has remained relatively stable so far, it is expected to rise by the end of the year and further into 2025.
It also predicted that global growth is likely to remain slow over the next couple of years and rising interest rates have reduced households’ disposable incomes, slowing consumption growth. This is likely to be further impacted by rising electricity rates and rental price inflation.
The June Consumer Sentiment report from the Westpac-Melbourne Institute summarised that the ‘index has now been near recession lows for the last year’ with inflation being the predominant factor, also noting that confidence in the labour market is now turning sour - all contributing to continued risk aversion.
May’s Consumer Confidence from Roy Morgan also reported concerning signs with a record high percentage of families saying they are ‘worse off’ financially (56%) and a 30 year high for families feeling they’ll be worse off this time next year (40%), rippling into 57% saying now is a ‘bad time to buy’ a major household item.
Businesses are already looking at reducing their cost base
With consumers spending less, interest rates and energy costs increasing, regardless of the industry, many businesses will be feeling the pinch if they haven’t already.
CBA conducted research on businesses (up to $5m turnover, Feb 2023) highlighting that small businesses were already getting prepared for lower consumer demand and higher running costs by making pragmatic changes to spending.
An ABS report (May 2023) revealed 38% of businesses expect to have to increase their prices in the next 3 months, mainly due to rising costs of products or services, fuel and energy. Encouragingly 48% don’t expect to do so, largely in order to retain customers or due to fixed contracts being in place.
However with weekly updates on the latest company to reduce their workforce significantly, cost-cutting is evident. For business owners or employees feeling concerned, remember, making any decisions without properly analysing your businesses’ strategy and effectiveness first, could lead to even worse outcomes down the track.
Before cutting costs - can you answer these 5 questions?
For businesses facing the unfortunate reality of needing to operate from a lower cost base, it’s important to take a moment and assess your business in order to avoid making reactive adjustments. Asking yourself the below questions may be the difference between growing your business or making damaging decisions.
- Can I clearly & simply articulate what my business objective is?
- Does the business's approach still align with current market/consumer needs?
- Am I crystal clear on what success looks like and how to measure it?
- Are all employees clear on success metrics and measuring performance to them?
- Am I clear on what’s converting through to the bottom line and what’s not?
Why is this so important?
Simply put - identifying the areas of your business that are not contributing to its success will allow you to make budget adjustments with minimal impact to your bottom line. However in order to do that it’s important to be clear on, and if necessary evolve, your strategy and objective/s to the current and future economic conditions.
While your business vision and purpose should remain consistent, how your business serves the purpose needs to be forever agile to market and consumer needs. Missing that beat will lead to irrelevance and leave the door wide open to your competitors. So take the time to review your strategy, ensure your objective makes sense and everyone within the business is clear on what they’re striving for and how to measure it.
With that clarity you’ll be able to cut the fat (instead of an artery), work more efficiently (avoiding burn-out and churn) and be single-mindedly, laser-focussed on success.
