Businesses must minimise their debt, get as much cash as possible and start training their staff, especially in the retail industry, to soften the blow of the next interest rate rise, business experts have warned.
The warnings come after inflation data released yesterday showed prices rose by a higher than expected 0.9% in the March quarter, causing the Australian dollar to soar and economists to revisit their rate rise forecasts.
ANZ wrote that there is now a “material risk” inflation could exceed the RBA’s 3% target band by the end of the year, writing that “another 25bps interest rate rise before year-end is now clearly a high probability”.
CommSec economist Craig James said that while the domestic economy is expected to speed up by the end of the year, “there is no question that inflation pressures will remain the hot button issue for the Reserve Bank over the mid-term”.
“In addition interest rates are already restrictive and as such CommSec expects the Reserve Bank to remain on the interest rate sidelines until the latter part of the year, with a rate hike pencilled in for November.”
And while Westpac is still forecasting a drop in interest rates by the end of the year, the majority of economists now agree: interest rates will rise, and it may be sooner rather than later.
While businesses, especially in the retail sector, are fretting over an increase, business experts say they can start doing the hard work now to soften the blow.
MGI Melbourne principal Sue Prestney says “it just comes down to cash management”.
“You need to make sure that you minimise your debt as much as possible by being efficient in the way you use your assets,” she warns.
With interest rates on business loans likely to rise, Prestney says businesses need to re-evaluate purchases and make sure they are doing enough to minimise their debt obligations.
“You need to make sure that you’re collecting your debts, although it’s pretty hard with debt collection at the moment. It’s all about cash management.”
“The key to managing the cost of your debts is really just to have the minimum amount of debt that you can manage.”
The biggest risk when interest rates rise is that businesses start shifting their attention away from the most critical factor – cashflow. Prestney says it is now becoming more important than ever to ensure you have enough cash on hand.
“You need to manage that cash cycle,” Prestney says, adding that businesses need to be pressing on their debtors to pay them back.
“The squeaky door gets attended to first. The key to managing the cost is just continuing to get on those bills. Get the maximum terms out of your creditors as well.”
“We all know that payment rates are quite out there, but businesses need to manage their cashflow strongly and have good cash management.”
Prestney also says businesses need to overlook their inventory and make sure it’s up-to-date. Stock that is left lying around, she says, can be turned into cash.
“People don’t pay sufficient attention to stock turns. They just have old stock sitting around that if someone paid sufficient attention to, could be turned into cash. It might not be a profit, but it’s cash.”
“Sometimes businesses need to be giving instructions to salesmen to turn that stock out and get some strategies for having it liquidated. But it’s also about making sure you’re ordering procedures are down and you’re not getting stock that will just sit around for any length of time.”
With so many retailers now combining their stores with service providers, (such as Myer recently introducing Botox services at its various outlets), Retail Doctor chief executive Brian Walker says it is time for retailers to start thinking about how they can add value and an experience to their store.
“Retailers really have to value in on what their proposition is, and how they are going to give value. Rather than just reverting to discounting, they need to think about their entire value proposition.”
“It might be gift wrapping, or it may be something else, but really concentrate on that value. You don’t have to spend a lot of money to do so.”
Walker also reminds businesses that staff training can go a long way, especially when you’re able to train those staff to increase conversions.
“Really concentrate on training. In speciality retail only one in five people actually buy something. So a lot needs to go into how you can increase the conversion rate in store, and I would very much focus on that area.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
