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Shifts in the local economy could shake your business
Takes 5 mins to read
01/6/2018

How shifts in the local economy could shake your business

With narrow profit margins, tough competition and a limited market, you probably run a tight ship as a small business owner. Unlike a large corporation, you can’t absorb significant losses, and a change in the economy no matter how small – can rock your boat.

Exchange rates

If you only operate locally, you might have assumed you’re immune to fluctuations in the Australian dollar or global exchange rates generally. Think again. There’s hardly a business that doesn’t deal with overseas suppliers, whether for physical materials or for services, such as labour.

Even if you don’t believe you’re exposed, your partners and customers could be. Wholesale prices will rise or fall with currency changes. If you’re a restaurant business, foreign tourists will either have a lot more money to spend or a lot less. On the other hand, Australian residents may choose to holiday at home when overseas prices become less affordable, giving a boost to the local sector.

Interest rates

Did you know that when interest rates rise, so does the cost of your debt?. This could limit your ability to borrow what you need or increase your risk of default. Typically, if rates go up, the Australian dollar also rises, though this isn’t always the case. If you're an exporter, it could mean your prices become less competitive.

If you trade locally and don’t have bank debt or a large mortgage, you might not worry about what the Reserve Bank decides to do with the cash rate. But your customers will.They could have less disposable income if loan rates go up, and therefore have less capacity to buy your products.

Government policy

A change in government policy could make or break your plans. On the positive side, for example, the instant asset write-off a couple of years ago enabled businesses to invest in new technology and equipment.

A change to the small to medium business (SMB) tax rate can also make a major difference, as can changes to payroll tax or wage laws. Depending on which way it goes, you might struggle to afford more staff, or you might find you have budget for extra capacity. All this impacts your future growth plans.

Confidence levels

Many factors influence how and why consumers spend, but a key one is consumer confidence. If there's a mood of doom and gloom, they’ll be more conservative with their money and this can exacerbate problems in the economy.

Business sentiment also fluctuates. The unemployment rate is a key indicator and influence on the economy. If it’s rising, this could mean other companies are struggling, cancelling projects and delaying growth plans. And when people are out of work, they have less money to spend.

If the opposite occurs, labour markets tighten and it can become more difficult to hire skilled staff. It could also be a sign that increased competition is ahead.

So how do you navigate uncertain waters without being an economist?

  • Keep a close eye on what different experts are saying. Don’t rely on a single voice or viewpoint.
  • Have a business plan that includes scenarios for best and worst-case market outlooks, and regularly review your strategy.
  • Look at opportunities for hedging, particularly if your exposure to exchange rates is high.
  • Be judicious with risk and don’t over-leverage. If a small shift in the cash rate would prevent you from repaying debt, borrow less.

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Future Food

KEY TAKE OUTS

CONTEXT

A changing economy can be a threat to your small food business. Knowing what could impact you may help you anticipate and adapt without difficulties.

PROCESS

Knowing the details around exchange rates, Interest rates, government policy, confidence levels could help you navigating safely through changing economy.

RESULT

Keep tabs on what experts say, include scenarios for best and worst case market outlooks in your business plan, look at opportunities for hedging, be careful with finance.

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