The stronger your business, the less likely it is to feel the effects of an economic downturn – or at least, the less severe those effects will be.
In this blog post, we will discuss some tips that should help Australian businesses not only survive but thrive during tough economic times.
We will focus on things like the disposal of surplus assets, controlling and measuring debt levels, and reducing debt where applicable.
By following these tips, you should be able to keep your business afloat and even grow.
The current economic climate
Some industries, more than others, continue to endure the impact of COVID-19, working from home, labour shortages, increasing inflationary costs, supply chain issues and more.
The widespread impacts COVID-19 has had on the Australian and global economies are widespread and expected to continue for some time.
With energy prices soaring, disruptions to the supply chain, labour shortages and more, Australian businesses, large and small, are struggling to stay afloat. There were 3,917 liquidations or administrative appointments across all industries recorded in the 2022 financial year.
In addition, the unemployment rate in Australia is sitting at 3.5 per cent (reported in August 2022), and this is expected to decrease in the coming months as the full extent of the economic damage caused by COVID-19 mends.
However, many businesses still feel the ongoing impacts of the pandemic and other economic disruptions happening in Australia and worldwide. To survive and thrive during these tough economic times, companies need to be proactive and take steps to ensure their cash flow is healthy and they are not over-leveraged.
Here are some tips on how to do this:
Disposal of surplus assets
If your business has any surplus assets, now is a good time to sell them off. Disposing of surplus assets will provide you with the working capital you can use to pay bills, invest in new products or services, or even replenish the business’s working capital levels. Your business’s surplus assets could include machinery, equipment, vehicles or even real estate.
Control and measure debt levels
One of the most important things you can do during tough economic times is to control and measure your debt levels. Financial tools such as financial covenants and reducing your overall debt can support this.
An example of a typical financial covenant used is Debt Service Coverage Ratio (DSCR). DSCR is a key metric used by lenders to assess a borrower’s ability to repay its debts. A higher DSCR indicates that a borrower has more capacity to service its debt obligations.
Focus on and forecast cash flow
Handling your incoming and outgoing cash flow well will support you in making smart decisions about where to allocate resources.
A 3-way forecast model can assist as it provides visibility across the entire business, looking at the profit and loss, cash flow, and balance sheet. The following video explains more about the benefits of 3-way forecasting and how it can assist the management of your business.
Generate new revenue streams
Another way to survive during tough economic times is to generate new revenue streams through:
- Diversifying your products or services
- Expanding into new markets
- Finding new ways to market your business
Whatever you do, make sure you are constantly looking for new ways to de-risk the business.
Keep expenses low
One of the best ways to survive during tough economic times is to keep your expenses low.
One way to do this is to identify ways to cut costs, whether through negotiating better deals with suppliers or changing your business model. The key is to keep a close eye on your expenses and find ways to reduce them where possible.
How Ledge can support your business
If your business requires support in the current economic climate, we encourage you to speak to one of our Ledge Finance Executives.
Once we understand your business, your current financial position and your goals, we can help you plan ahead and guide you through tough business decisions. Get in touch today to set your business up for the future.