Cautious optimism

As we head into the final month of the election process, every small business needs to be aware that debt repayments and cuts to forward expenditures have replaced the stimulus package as the basis for popular illegitimacy.

Retailers are reporting that even price cuts are only holding the line now that the cash splash has come to an end. Investors are still looking to bonds and holding cash in longer term deposits rather than taking any action until we know if it is going to be Joe or Wayne holding the Treasury purse.

As Gerry Harvey has pointed out, the election environment adds to consumer uncertainty and reductions in major household expenditures and the steady state of the equities market confirms that there is little appetite for longer term thinking even until the Christmas retail period.

Smart companies will be aware that their banks have been demanding not only more securitisation of loans but also greater access to business information and trend data in order to lower their default rates. This means that for the next three months it is going to be much more difficult to expand the business and obtain transitional finance.

The reality is that the lenders are looking to reduce risks at the same time as both parties are into constraints on liquidity in the economy in the life of the next Parliament.

Taken together with a slowdown and even potential downward slide in consumer sentiment and the risk that the RBA will raise rates, it is not the time to launch new products to the market. While this column considers that now is not the time to raise the costs of doing business, Glenn Stevens may well desire to be seen to be consistent by raising rates just before the voters go to the polls to prove its real action provision of independent consistency from the times of John Howard.

Around the world both consumers and investors are holding their breath and hoping that enough was done to avoid a double dip recession. They are increasing their savings rate, reducing their mortgage overhang and working harder to ensure job security without increases in household credit card debts. This is creating a larger than average risk that small and medium enterprises will find cuts in their business to business increase.

Treasurers of smart companies will therefore use the next month to draw up contingency plans for conversion of part-time to full-time positions if consumer confidence shows signs of getting out of the doldrums and for a sharp pruning of unprofitable lines of business and terms of trade if the RBA grants a stay of execution to rises in rates.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099