What the latest World Bank economic forecasts mean for Aussie SMEs
Grim news from the financial sector yesterday, as the World Bank flagged a potential new economic downturn, which looks to be uglier than the rollercoaster we’ve just endured.
Dubbed ‘GFC Mark II’, the World Bank has cut is 2012 economic growth forecast in high economic countries, and is predicting negative growth for countries that use the Euro. Australia wasn’t specifically mentioned in the report, but a large scale economic downturn would still have ongoing implications for our own market, most specifically in terms of consumer confidence, decreased commodity export prices and a lock down on credit from financial institutions. While a relatively good budget position and our recent interest rate cut should cushion Australia from the worst of the blow, businesses should brace themselves and start preparing now.
Build up that piggy bank
Cash flow ranks among one of the biggest pain points for Australia’s 2 million odd SME’s. Many have experienced the harrowing sleepless nights as they lay in worry, trying to figure out how they will make ends meet. And yet despite this, as a nation, we’re still ranked among the worst savers in the world. According to the 2010 National Savings and Debt Barometer, only 11% of people were confident that their savings would last at least 6 months if they were suddenly out of work. And 80% of the population has no household budget. Start building up your reserve cash, as a credit crunch will make short term ‘bridging the cash gap’ loans hard to obtain.
Prioritise your GST responsibilities
One of the most concerning trends emerged from last year’s MYOB Business Monitor Report – BAS and GST, was that a massive 31% of SME’s do not put GST owed to the tax office aside, meaning that they must find the money on the spot when it’s due. With reports that the ATO is in mass crack down mode on outstanding BAS payments (businesses as little as six months in arrears are being forced into liquidation), the pressure has never been greater on business owners to find their BAS payments, fast. Start squirreling away your GST payments, to avoid becoming yet another statistic in an uncertain economic climate.
Make sure your budget includes an energy cost increase
Anyone who hasn’t received an energy bill in awhile is about to get a shock at the mail box, with the price of electricity and gas soaring. Thanks in part to the carbon tax, coupled with a largely unregulated sector, the price of energy has risen over 30% in Australia in just four years. This trend is tipped to continue as the industry passes on price increases in coal and gas, and new infrastructure costs onto consumers.
Keep an eye on your creditors
Conditions are also being aggravated by the widely noted deterioration of prompt client payments. The worst offenders? Australia’s large corporations who, in the June 2011 quarter, took a staggering 56 days on average to pay their outstanding invoices, forcing SME’s to wait anxiously for much needed funds. Develop clear credit terms, and make it a habit to politely and promptly chase up invoices the day they fall outside of these.
While commentators are quick to point out that the World Bank’s latest report is largely thanks to the European crisis, and that the economic situation in Australia is very different, it’s never a mistake to get some good savings habits in place. In the last two years, the average small business owner is saving $1.27 for every dollar spent – but there are still many who don’t have any savings to fall back on at all. With these latest World Bank predictions, it’s important that every SME has a savings plan, and trading terms that promote healthy cash flow.