Paying down the debt

Now that we can argue whether Wayne Swan made up the GFC and whether he needs to build another national pool of bail out funds, it is important for smart companies to build their own sinking fund for the New Year.

The big banks are going to cut back on their riskier loan books and support for small business in the New Year as they respond to the about to be released Swan proposals for more competition in the financial sector.

Where a small business is heavily based upon imports, there will be opportunities to double order sizes now with delayed delivery schedules and plans to build up internal capital and reduce company costs of doing business.

Where there is a bias towards exports, make sure that you stay close to your bank’s lending team in the first few months of next year and build partnerships with downstream distributors who can share your plans for expansion into new markets.

While the public wants a return on the guarantees supplied by the Government during that crisis, there has not been a rush to join credit unions and the few residual building societies to take out more business or housing loans. As the president of the Business Council of Australia, Graham Bradley points out, in the next couple of years we will be facing nearly $100 billion in net debt and, “We would be better to get that paid down so that we bulwark ourselves against another global turndown first.”

Around the world, we are seeing signs that central banks are struggling with bailouts, public reaction to austerity measures and the slow response of entrepreneurs to the call for private sector investments to replace the stimulus packages.

Householders are paying down their debt, cutting back on retail sales, spending more time at home with their families and beginning to question the claims (including of this column) that we are heading for better times.

Gary Morgan reports that “Consumer Confidence has fallen 2.3pts to 120.6 driven by worries about people’s personal financial situations with a rising number of Australians (33%, up 5%) saying they feel financially ‘worse off’ than a year ago, while 37% (down 3%) of Australians expect their family to be ‘better off’ financially this time next year.

The continuing economic uncertainty from Europe — in this case Ireland — has caused stock markets worldwide, including the Australian stock market, to ‘stumble’ in recent weeks and has seen the Australian Dollar fall from a high of nearly $1.02 USD at the start of November to be trading at 96 US cents last weekend. Both of these factors are likely contributing to the weakness in this week’s Consumer Confidence.”

Smart companies will adopt a range of measures to expand their business while paying down their debt. These include streamlining their 2011/12 business plans to focus on forward orders, export opportunities, prime prospects and shortened terms of trade. There will be a need to cull the customer profile to cut out those that are consistently late in paying for inventory and incentives for early payment in the form of special offers. A renewed focus on market research, innovation and customer service will keep you in good company for a prosperous New Year.

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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