TABLE OF CONTENTS
RBA Rate Rise Australia February 2023 – The FAQs
Timing interest rates rises for small businesses
- Manage cash flow: Make sure you have enough cash on hand to cover short-term expenses and unexpected emergencies.
- Reduce debt: Pay off high-interest debt as quickly as possible to minimize the impact of rising interest rates.
- Increase revenue: Focus on expanding your customer base and improving your products and services to increase revenue.
- Cut costs: Identify and eliminate unnecessary expenses to improve your bottom line.
- Negotiate better terms: Try to negotiate better terms with suppliers, lenders, and landlords to reduce the impact of rising interest rates.
- Diversify your funding sources: Consider alternative forms of financing, such as grants, loans from family and friends, and crowdfunding.
- Seek professional advice: Consult with a financial advisor or accountant to assess your current financial situation and develop a strategy to survive an interest rate rise.
The February 2023 Australia RBA Rate Rise – how long do I have?
From the point an interest rate raise is announced by the RBA your business loan increases can be up to 30 days time.
This time allows for your small business to strategically consider where you can pivot, and look for opportunities to either reduce operating costs to allow for the increase in the interest on the loan repayment or alternatively increase sales in the business.
Positives in an RBA Rate Rise
What does an RBA interest rate rise mean for my small business?
A rise in interest rates can have several implications for a small business, including:
- Increased borrowing costs: If your small business has a loan or line of credit, the higher interest rates will increase the cost of borrowing money.
- Reduced consumer spending: Higher interest rates can lead to decreased consumer spending, which can affect the demand for your products or services.
- Decreased investment: If interest rates are high, it can be more attractive for investors to put their money in other investments, such as bonds, which can reduce the amount of investment capital available to your small business.
- Difficulty obtaining financing: Higher interest rates can make it more difficult for small businesses to obtain new financing, especially if they already have high levels of debt.
- Increased costs of doing business: If your small business has a fixed rate loan, the interest rate increase can result in higher monthly payments, leaving you with less money to invest in your business.
However, it’s important to keep in mind that interest rate hikes can also have a positive effect on small businesses. For example, if your small business has a savings account or money market fund, a higher interest rate will increase the amount of interest earned.
How can I lower my operating costs to cover the recent interest rate raise?
There are several ways to lower operating costs to offset the impact of a recent interest rate raise, including:
- Streamline operations: Evaluate your business processes to identify areas where you can streamline operations and reduce costs.
- Negotiate better deals with suppliers: Contact suppliers to negotiate better prices and terms, such as longer payment terms, discounts for bulk purchases, or reduced shipping costs.
- Implement energy-saving measures: Invest in energy-efficient equipment and practices, such as LED lighting and smart thermostats, to reduce your energy costs.
- Utilize technology: Consider using technology to automate tasks and streamline operations, such as using cloud-based accounting software or an online project management tool.
- Reduce staff: Consider reducing staff or using part-time or contract workers to save on employee-related costs, such as salaries, benefits, and training.
- Trim marketing and advertising budgets: Evaluate your marketing and advertising efforts to see where you can trim costs without sacrificing effectiveness.
- Rent vs. own: Consider renting equipment or space instead of owning it, which can reduce upfront costs and allow you to focus on core operations.
- Evaluate insurance coverage: Regularly evaluate your insurance coverage to ensure you are only paying for the coverage you need.
By reducing operating costs, you can better absorb the impact of a recent interest rate raise and maintain your profitability.
What support is available for small businesses for the recent rate raise?
There are several types of support available for small businesses to help cope with the recent interest rate raise, including:
- Government programs: The government offers various programs, such as the Small Business Administration (SBA) loans, grants, and tax incentives, designed to support small businesses.
- Lender assistance: Lenders may be able to offer small businesses financial support, such as loan modifications, payment deferrals, or lower interest rates.
- Business associations: Many business associations offer support services to their members, such as mentorship programs, networking opportunities, and access to financing.
- Community organizations: Local community organizations, such as non-profits and chambers of commerce, can offer support and resources to small businesses in the form of education, counseling, and networking opportunities.
- Online resources: There are many online resources available, such as websites and forums, that offer information and support to small business owners.
It’s important to keep in mind that the support available to small businesses can vary depending on location, industry, and other factors, so it’s a good idea to research and explore the options available in your area.
How can I increase my sales to support the increasing costs of the recent rate rise?
To increase sales and offset the impact of the recent interest rate raise, you can consider the following strategies:
- Improve your marketing and advertising efforts: Invest in targeted marketing campaigns and online advertising to reach a wider audience and increase brand awareness.
- Offer promotions and discounts: Offer special promotions and discounts to attract new customers and encourage repeat business.
- Expand your product line: Consider adding new products or services to your offerings to reach new customers and increase sales.
- Improve your customer service: Provide excellent customer service to increase customer loyalty and encourage repeat business.
- Utilize social media: Use social media platforms to engage with customers, build your brand, and drive sales.
- Network and build relationships: Network with other businesses and individuals in your community to expand your customer base and increase sales.
- Diversify your sales channels: Consider selling your products or services through multiple channels, such as online, in-store, or through distributors, to reach a wider audience and increase sales.
- Conduct market research: Conduct market research to understand your target audience, their needs and preferences, and identify new sales opportunities.
By implementing these strategies, you can increase sales and better absorb the impact of the recent interest rate raise on your business.
What services are available to support small businesses navigate interest rate rises?
There are several services available to support small businesses as they navigate interest rate raises, including:
- Financial planning and consulting services: Financial planning and consulting services can help small business owners understand the impact of interest rate hikes on their business and provide guidance on how to manage their finances effectively.
- Accounting and bookkeeping services: Professional accounting and bookkeeping services can help small business owners keep their financial records in order and ensure they are in compliance with financial regulations.
- Loan and financing services: Loan and financing services can help small businesses access funding to support their operations and growth, even during a period of rising interest rates.
- Business coaching and mentorship services: Business coaching and mentorship services can provide small business owners with the support and guidance they need to navigate challenges and achieve their goals.
- Legal services: Legal services can help small businesses navigate the legal and regulatory requirements associated with operating a business, including contract negotiations and disputes.
- Insurance services: Insurance services can help small businesses protect their operations, employees, and assets from risks and losses.
By utilizing these services, small businesses can receive the support and guidance they need to navigate interest rate hikes and maintain their operations and growth.
Three ways to manage cash flow during interest rate rises
Here are three ways to manage cash flow during interest rate rises:
- Control operating costs: Identify areas where you can reduce costs and streamline operations, such as reducing energy consumption, cutting unnecessary expenses, and negotiating better prices with suppliers.
- Improve invoicing and collections: Ensure that invoices are sent promptly and that payment terms are clear and realistic. Follow up on late payments and consider offering discounts for early payments.
- Optimize working capital: Make sure you have adequate working capital to cover short-term needs, such as inventory and payroll. Consider alternatives to traditional financing, such as factoring or invoice financing, to improve cash flow.
By implementing these strategies, small businesses can better manage their cash flow during interest rate rises, maintain their operations and growth, and position themselves for long-term success.
Written by small business financial advisor Damien Attwood from EMPOWER Agency.
Are you a small Aussie Business looking for some financial business management support? We support businesses all over Australia. As your business grows, you may find yourself requiring financial control or operations management, but without the budget to employ a full time staff manager. We live for efficiency and affordability while delivering outcomes just as great – if not better – than if you hired a new staff member.
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