How did your business fare in 2023?

After enduring several challenging years, 2023 finally appeared to mark a turning point for small to medium businesses. 

With lockdowns no longer a concern and the threat of severe COVID infections diminishing, many were able to resume normal operations and focus on rebuilding and growth. 

However, the year also presented new and unique challenges that required a different kind of resilience and adaptability. As business owners reflect on the year that was and prepare for 2024, here are three key pressures we are seeing impact on organisations across a variety of sectors…

# 1: Inflation

The rising cost of goods and services has had a strong impact on small to medium businesses, leading to challenges such as:

• cashflow pressures
• delayed invoice payments
• reduced consumer spending 

For some states and territories (such as the ACT with its relatively high average household income), the impact of inflation on consumer spending hasn’t been felt too deeply. However, not all industries have escaped unscathed. Construction in particular has struggled under the weight of inflationary pressures, with many enduring heavy losses due to fixed contracts that did not account for steep material price increases. 

With more interest rate rises on the horizon, it seems probable that this trend will not only persist but could also intensify over time.

# 2: Lending and tax challenges 

A combination of banking reforms, the global pandemic, and escalating inflation have led banks to adopt a more conservative approach to lending. The criteria for loan approvals has significantly tightened, making it more difficult for businesses to access resources in times of financial strain or to support growth plans.

At the same time, all government financial assistance related to the pandemic has ceased, as has leniency from the Australian Tax Office (ATO) for tax payments and deadlines. As the ATO is essentially a creditor with the power to enforce debt collection – including through liquidation – it's important that business owners don’t ignore these debts. 

Another area of concern is the increase in superannuation noncompliance, more often due to financial distress than intentional evasion. This is particularly prevalent in certain sectors, and can have serious consequences for companies and their directors. 

# 3: Residual impacts of COVID

Despite its lessening severity and the absence of lockdowns, businesses are still struggling with ongoing COVID infections. This continues to impact productivity, with unexpected staff shortages making it difficult to maintain business operations.   
As we head into the busy season for sectors such as retail and hospitality, business owners will need to have contingency plans that seek to balance health and safety with business needs. 

Planning for 2024

There are many strategies business owners can employ as they embark on planning for a successful year ahead. Here are 7 important considerations to help inform your planning…

• Cashflow and budgeting – keep a close eye on your financials and consider engaging a business adviser to conduct scenario planning for your business. This will help you stay ready for both challenges and opportunities, while actively exploring strategies to enhance your profitability.
• Pricing – don’t be afraid to raise prices to keep your business sustainable. While you might have traditionally evaluated pricing annually, it might be wise to do it more often now (i.e.: every three to six months). Maintain open, honest communication with customers and clearly explain what is changing and why. 
• Contract management – be sure to request a decent deposit in advance of starting major projects. Carefully review any contracts before you sign, and make sure they include contingencies in the event of unexpected events such as delays to completion or rising material costs. 
• Lending and tax payment options – if you find that traditional lending avenues are unavailable to you, consider exploring alternatives such as investors or government grants. Keep on top of tax and super obligations and, if this becomes too difficult, speak with a restructuring and recovery expert who can explain your options and help you develop a way forward. 
• Cybersecurity – as banks phase out cheques it’s important to ensure your electronic financial transactions are secure. This goes well beyond commercial antivirus protection, so it’s often worth engaging a cybersecurity specialist to review your systems and identify any dangerous gaps. 
• Technology and AI – in the face of staff shortages, be they due to absences or a lack of skilled labour, a growing number of businesses are embracing technology as a solution. During your strategic planning, be sure to investigate avenues to optimise your business processes with the help of existing and emerging technologies.
• Sustainability – sustainability goes beyond green practices and encompasses your business’s ability to thrive in a modern era. Take time to assess how your business operates and what could be done to make it more environmentally and socially conscious. This needn’t be an overly expensive exercise, but it can have many financial and reputational benefits and provide some preparedness for future legislation, such as the new climate reporting standards for corporations that are to be introduced by 1 July 2024. 

Be supported in your planning

RSM is home to an expansive team of experts in areas such as:

• cashflow and budgeting
• business advisory
• restructuring and recovery
• cybersecurity
• sustainability

Whether your business is currently struggling or poised to embark on exciting transformation and growth, we can assist you to develop a clear and effective roadmap that focusses on harnessing potential while safeguarding against uncertainties. 

FOR MORE INFORMATION

For a free business health check, or to speak with one of our advisers, please contact local RSM office.