Turn, turn, turn again

The good news is the economy is on the turn. The bad news is good times are a year down the track. In the meantime…

The good news is that the economy is on the turn. Australia is getting better prices for commodities, the grain market will have a good year, defence spending will be cut and fiscal policy will address rising inflation and the credit crunch.

The bad new is that the results are a year down the track – in the short term small and medium enterprises will have to make turnarounds faster than ABC and Allco, as administrators and insolvency practioners join the feeding frenzy that started with the US sub-prime crisis.

We are going to face a much larger crisis that flows on from all banks seeking funds for even the best of their credit clients as a consequence of the multi-trillion dollar US-centred securitisation debacle that began in July 2007 and is now even getting the attention of Warren Buffett.

The reality is that the RBA appears to be looking to measures of corporate pain to determine when to accept that the market is on the mat and saying “ouch”.

The latest figures from ASIC indicate that 372 companies were in the tender hands of administrators in January and there were more than 600 companies that had turned the corner into insolvency.

The Institute of Public Affairs appears to accept that the worst is yet to come and will soon launch a public education campaign to send warning signals to small business owners that the credit crunch has only just begun to bite.

The reality for many business owners is that the run up to the tsunami warning of Peter Costello enabled a false sense of security about this year’s global prospects, and although the consumer confidence figures of Roy Morgan pointed the other way, nobody was prepared to listen to consumer sentiment as a turnaround indicator.

As indicated in this column for some time, it is absolutely critical that SMEs take the time to review their over-optimistic trend line business plans from the previous year and begin to address both terms of trade and cash flow projections.

In the next few weeks the news will continue to pile on the reality that customers will be cutting back their expenditure, distributors will be reducing forward inventories and manufacturers related to the domestic construction market will be watched closely for signs that they are revising downward their forward estimates.

During this period the Rudd honeymoon will hit the Turnbull blame game barrier as it tries to get people to accept that while they are getting the promised tax cuts they will have to save it to cover increasing costs and an impending May rate rise we have to have. Lindsay Tanner will prove an early warning sign for all those who had made the fatal error of believing the Peter Garrett fantasy that the incoming Government was going to turnaround from its intentions on inflation control.

Overall, the Australian economy will be protected by a combination of the decisions of Secretary to the Treasury Ken Henry to pull on the brakes, push for huge budget deficits, cut anything that is not tied down with a firm contract and an even firmer constituency. Every business will be cash strapped and unable to get the attention of their lending manager in this country unless they are willing to hand over large slabs of equity. It’s your turn to review your business futures.

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