Australia’s labour market was hit with unemployment up 0.1% to 5.3% and the underemployed increasing 0.2% to 8.5% in October 2019 as another worrying sign for the Australian Economy and the risk of an Australian Recession in 2020. For some businesses the impacts can be significant while for others they may have little impact. Specifically, those businesses that have greater exposure to discretionary spend will be already feeling the impact.
Discretionary spend are those items where households do not need to spend money such as: travel (especially overseas holidays), take-away foods and restaurants, alcohol and entertainment, house cleaner and other household services and luxury items generally.
Economically there is a rule of thumb that says for every 1% increase in unemployment there is a 2% decrease in GDP. Putting the above items together, every 0.1% increase in unemployment starts to have a much bigger impact on discretionary spend.
How will this impact my business?
For business there will naturally be winners and losers, with those exposed to more discretionary spend or the businesses that supply them hardest hit. This does not mean that there is nothing that can be done about it.
Some items businesses should be considering include:
· Be strategic. Recessions typically only last for 18 months. Ensure you have a well thought through and executed plan on how you could outlast any downturn.
· Focus on cash. Ensure your cash flow forecasting models are being updated monthly and you are making business decisions based on forecast cash levels – not waiting until there is no cash in the business.
· Maximise the profitability of the business. The balance of decision making needs to move a little away from growth and move a little towards profits and cash.
· Arrange any working capital funding now before you need it and not when you need it as it will be more difficult when your accounts are poor.
· Review and reduce risk from your business. With mitigation strategies in place your business will be more robust and regardless of whether a recession occurs will be a much better business.
About CFO Evolve
CFO Evolve provide exceptional part-time CFOs and virtual CFOs that can review and implement the strategies most suited to recession proofing your business. Contact us today to see how we can assist your business.
Read More in the Recession Proofing your Business Series >
Komentar