Things Are Choppy!

The second quarter of the 2012/13 financial year has begun with the Reserve Bank lowering the official cash rate by 0.25% to 3.25% in response to a slowing of economic activity in some parts of Australia.

The government obviously has some concerns with the slowing down of economic activity because it has brought forward its mid-year economic review and is reported to have embarked on a serious review of a wide range of government programs in an attempt to reduce expenditure or defer expenditure to a later time.  There has been a 'pause' in approval for some government grant programs in an attempt to defer expenditure to a later time.

The mining industry is facing changing economic activity with decreased economic conditions in China, contributing to lower prices for many mineral products.

Some economists are forecasting a significant improvement in economic activity by mid 2013, which could lead to interest rates rising again.

Other economists have a contrary view in that they're not anticipating improved business conditions in the next 12 months.
Debtors' days outstanding (as advised by Dunn & Bradstreet) is approximately 54 days and the Australian Tax Office has stated that approximately $9B is owed by small businesses on Business Activity Statements.  These figures confirm that many segments of businesses are experiencing difficult cash flow situations.

Banks are closely monitoring loan performance by their customers.

All of this highlights the necessity for business operators to closely monitor their business operations including:
  • Cashflow management with close attention to debtors, stock, work in progress.
  • Calculating regularly the KPIs (Key Performance Indicators) applicable to your business as compared to Budgets.
  • Preparing regular financial accounts to monitor actual performance.
It's probably a good time to think about the effect that changing interest rates might have on your business.  If you're currently operating with a variable rate, perhaps you should consider locking in a fixed rate.

It's a good time to consider risk management strategies and the variables affecting your business including:
  • debtors' days outstanding
  • interest rates – variable or fixed?
  • business performance
  • bank covenant requirements
Times are certainly "choppy" for many businesses.  If you'd like us to review the "Risk Management Strategies" for your business, please contact us.

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