Contingency corrections

When the banks start cutting their hours and financial institutions slash staff, it is clear that Glenn Stevens is going to have to make some early and hefty contingency corrections to central bank assumptions about fiscal policies.

Wayne Swan is going to find it impossible to return to surplus as “the world’s greatest treasurer” is asked to pour cash into international bailout funds and defer infrastructure programs for a few years.

Now is the time to brush off last year’s business and marketing plans and begin the long journey into the domestic and US electoral cycle that will create further instability and belt tightening across the nation. It is certainly not the time to continue working on trends from last year’s recovery or this year’s yields form equity market investments.

Business leaders will recognise that while their confidence levels have been returning, the Chinese Government is back in the business of growth in the vast areas away from the coastal cities, and the world financial austerity plans will all combine to increase the risk of an overall downturn in sales revenue this year.

Mark Johnson, Alinta Energy Chairman may be right in saying that “relative to the rest of the world we are not losing ground and that the efficiency and strength of the Australian system is probably being preserved”. However, if we do shrink proportionally to the rest of the world this can only mean that the recent signs of growth are going to have to wait a couple of years for business and consumer confidence to convert into new sales opportunities.

The number one risk for most small businesses under these conditions will therefore be inadequate management of cashflow over the troughs in the middle of this year.

Smart companies will cut expenditure to focus on current customers for the rest of this financial year and set aside funds for creation of new customers in the second half of this year.

The focus will be superior service to those with the willingness to buy and a massive improvement in customer relationship management.

Companies (no names, no pack drill) that pride themselves on discount services and a Philippines or Indian call centre that tells its clients that they cannot expect service as well as discounts and refuse to even apologise for cancellations, delays and demands for higher payments, may find that the rich defer consumption and the rest simply lock up their wallets.

As John Hewson points out, the major economic, social and political constraint on the economic outlook is the ever widening gap between the rich and the poor.

The former are paying down debt, waiting for the next European debt crisis shoe to hit the floor and for the next government to fall, while the latter are struggling to maintain jobs by working more hours for less and saving rather than spending to get through the impacts of the pressures to return budgets to surplus.

Small and medium enterprises should prepare contingency plans that carefully monitor the next three to six months of operating costs, and defer significant risks until later in the calendar year.

If your company is seeking bank finance for expansion it will be important to have sufficient reserves to cover a longer than anticipated time to gain sufficient market share to ensure an early return on investment.

In the short-term this means getting your family and staff members to ask the hard questions such as, “Which expenses could we defer or cut? What if we lose significant current accounts? How do we adjust to desperate discounting by competitors? What extra service can we offer to maintain our market share?”

Smart companies will pay close attention to monthly accounts payable and the number of days accounts are outstanding, as a slowdown in accounts payable will lead to cashflow concerns if consumer confidence continues to be hit by the volatility promoting media blasts.

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. Colin is also a member of the global Association of Professional Futurists.