Getting Practical when Times are Tough

2022 was full of economic challenges for businesses, governments, pensioners, and just about everything and everyone in between. As the RBA continues to raise interest rates to combat inflation, Australian households are feeling the pinch with cost-of-living expenses only going one way – up. But as they say, when the going gets tough, the tough get going, and Australians are famously a tough bunch. If you’re looking for a guide with practical, actionable ways to get on top of things no matter the outside pressures, you’re in the right place.

Action Items – Personal & Family Finances

Your personal and family budget isn’t quite cutting the mustard anymore, you’re dipping into your savings to make ends meet, and the bank keeps on sending letters with rising interest rates and greater repayments. If this sounds like you – read on for some timely action items.

Review your Budget

This one is a bit of a no-brainer, but if your budget is a few years old, or you haven’t created a budget at all, now is the time to have a look at it. You might have additional sources of income you can include, your expenses may have changed (as they have for most people lately), and there could be large expenses on the horizon that you need to start saving for.

The internet is awash with budget planning tools, and while not all are created equal, most serve their purpose in helping you visualise your income and expenses, identify unnecessary expenditure, find areas to tighten things up, and allocate a realistic amount to savings. It is hard to be disciplined in maintaining a budget, but keep on top of it and you’ll reap the rewards.

Are Your Loans Working for You?

Chances are, if you have a home loan, RBA interest rate rises through 2022 have prompted your bank to raise their rates, and in turn, your home loan repayments. This looks set to carry on into 2023, so now is the time to review your loans and make sure you’re getting the best deal. Many home loan customers are shopping around (often with the help of a mortgage broker), and lenders are responding with attractive deals for new customers to win new business. Some even find that their current lender is willing to sharpen their pencils, so you don’t jump ship. Engaging a broker is your best port of call here, as their experience and access to a wide range of lenders can unlock opportunities for you that you may not be able to find yourself.

Consider Consolidating Your Debt

In a time of rising interest rates, managing a number of loans with different rates and repayment amounts, all whilst watching your cashflow might feel like a full-time job in itself. Debt consolidation may be a sound option to make repayments easier and ease the squeeze on the family budget. You’ll have one repayment to make, and only one interest rate to keep an eye on, giving you greater clarity in your cashflow.

Make the Most of Tax Time

Looking ahead to the middle of the year, consider tax time. As an individual, you might get a small refund, no refund at all, or a tax bill. Something to consider in the 6-months leading up to 30 June is to maximise your deductions. By doing this, you’ll either increase your tax refund and end up with more in your pocket, or at the very least reduce the amount that you owe the ATO at tax time. To make the most of this, consider engaging a reputable tax accountant. Their experience can help you optimise your tax position.

Diarise Recurring Bills

“Bill Shock” is something that a number of Australians feel when their bills fall due. Something you might find success with is diarising recurring bills as soon as you take care of the current one. For instance, say you renew your home insurance policy on 1 July for 12 months. You then set a reminder in your phone for 1 June the following year, giving you one month before the renewal date to weigh up other quotes, and ensure that you have the funds to pay the premium. This means no nasty surprises, no stressful moments trying to gather some loose change to pay the bills, and enough time to shop around for a better deal.

Action Items – Business

The prevailing economic climate impacts businesses just as it does individuals, but in different ways. With the economy as it is now, the impact the economy will have is likely negative, especially for retail and other B2C (Business to Consumer) businesses, as the tightening of household budgets sees discretionary spending reduced. As a result, many businesses see sales take the hit. There is also increased pressure on business loans, as interest rates and repayments rise. However, there are practical things you can do as a business owner to streamline your structure, plan ahead, and even find new opportunities.

Three-Way Forecasting

As the cost of most things rise, business expenses should be monitored closely, to ensure they can be absorbed or passed onto customers if required. Three-way forecasts are an effective way to monitor and project forward your revenue and expenses. When you (or rather your accountant) execute a three-way forecast, you will see how rising costs and other overheads impact your bottom line, giving you the tools and data to make better decisions about pricing, cost-cutting, business processes and more.

Review Your Business Structure

In the complex tax legislation landscape, where things change frequently, thinking ahead is critical – and this includes optimising your business structure. You might have outgrown your current structure, or have an opportunity to restructure into one that better suits your current operations. In any case, your structure should allow for growth, as well as maintain (or improve) tax efficiency, as a more tax-efficient business structure means more money in your pockets, as opposed to the ATO’s.

Benchmarking Against the Competition

You can find sustained competitive advantage as a business owner if you know how your business’ costs and revenue stacks up against other businesses in your industry. Benchmarking data can help you get that edge on the competition. There is a plethora of financial resources online that can help you find key statistics, margins, and ratios for certain industries, giving you the tools to compare your business against the others. Based on what you find, you can identify key areas where you are overperforming, and some where you could improve.

Marketing & Branding

When belts tighten and spending decreases due to a tough economy, people need value. No matter what you offer, take stock of how you communicate value. The messaging in your marketing communications should reflect the benefits of your product or service, including why the customer will save money in the short- or long-term; why what you’re selling is superior to the competition (and therefore worth spending money on); or what additional value they’ll enjoy that transcends the dollar value they’ll pay.

Tighten up Your Accounts Receivable

As many Australian businesses struggle, insolvency on the rise. Therefore, it’s critical to ensure that you have as much control as possible on your accounts receivable functions. Increased debtor days and bad debts can put your business in a tricky spot, so having a solid collection procedure and agreed payment terms is crucial. Small discounts for upfront payment is something with which businesses can enjoy success, so depending on your margins, this may be something to consider. Speaking with your accountant or business advisor may also uncover further options that will suit your business. A nominal reduction in margins now can save a lot of headaches down the track.

Negotiate Trading Terms

Perhaps not everything is truly negotiable, but in business it doesn’t hurt to ask the question – you may just reap the benefits of a more efficient and cost-effective arrangement with your suppliers. For example, consider negotiating with your suppliers to buy in bulk to save on per-unit costs. Leveraging scale by employing volume discounts can have a real impact on expenses and margins.

Consider Offshoring

In this economy, the recruitment market is incredibly competitive, and is certainly an employee’s market. With candidates holding the cards, many businesses, particularly those in the professional services industry, look to offshore teams to fill available roles. Once upon a time, roles in an offshore team were often entry-level positions, however a greater number of more senior roles are being taken on by those employees. One significant upshot is the cost savings, not to mention opening a larger pool of talent from which to select your next employee that your competitors may not be looking at.

Next Steps

The current state of the economy won’t last forever, but the likelihood is that it will remain for a while yet, especially with further rate rises on the cards for the first part of 2023. As such, it is so important to ensure that you are optimising your personal and business finances, so you can ride out the current storm, and thrive in the future.

If you’d like to discuss further how People + Partners can support you in making the most of your current situation, please don’t hesitate to call us on +61 2 9093 1311, or contact us via our website.

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