5 min read
The Financial Year in Review (Part 1) – A Year of Challenges
It's often said that one cannot comprehend the present – or prepare for the future – without first understanding the past. In this sense, looking back over the financial year that is about to close its doors is a critical exercise for any business owner wanting to be equipped to face next year's economic trends.
The end of the financial year is always an important business milestone. The ticking over of June 30 represents a great opportunity for business owners across Australia to reflect on what has been, consider where they are now and plan where they will be when another year rolls on. But it's not just an opportunity for introspection – it also has tangible impacts on the business community.
A 2014-15: A year of challenges
It's no secret that 2014-15 has been a tough year for businesses, largely on the back of the winding down of the resources boom, which can be dated back to around the middle of the last decade. As a Reserve Bank of Australia research discussion paper from August 2014 pointed out, since that time, it has raised real per capita household disposable income by 13 per cent, lowered unemployment by 1.25 per cent and raised real wages by 6 per cent.
While it lasted, this boom had important flow-on effects on Australian business as a whole. With higher wages and more disposable income, consumers were spending more, filling the pockets of business owners across Australia. However, as a Melbourne Institute report released in March this year confirmed, both the resources sector and the Australian economy are now firmly in transition, leading to below-trend growth, higher unemployment and suppressed wages.
Much as the uptick of the mining boom was good for business, below-trend growth has also been causing pain for Australian companies. Roy Morgan Research has recorded business confidence as steadily dropping since October 2013, hitting a low of 105.1 in April 2015 – the lowest score noted by the survey since August 2011.
It's not difficult to see why. The Australian Bureau of Statistics found that gross profits fell by 7.3 per cent over the year to the December quarter of 2014. Meanwhile, Dunn & Bradstreet's March 2015 Business Expectation Survey measured sales and profits as consistent underperformers over the course of 2014 and 2015.
Tight conditions put pressure on businesses
All of this has added up to a challenging environment for Australian businesses. For one, the high degree of economic uncertainty means it's been difficult for business entrepreneurs and business owners to make plans for the future. It's not easy to make arrangements for expansion when the economic outlook looks as murky as it currently does.
Tougher economic conditions have also led to a squeeze on consumers. The last 12 months have hardly been a period of care-free spending for most Australians, who are more reluctant than ever to part ways with their hard-earned cash, particularly with living costs steadily rising.
In this environment, customers are increasingly opting to pay later, putting a corresponding pressure on businesses. And while cash flow management has always been a top priority for small to medium enterprises (SMEs), these conditions are making it an even bigger concern.
Kimberly Middlemis, partner at Adrians Chartered Accountants, weighed in on this.
"When you are looking at a client and they are talking about what is their biggest problem, in their top five, cash flow is always in there," she stated.
She added that this situation of slow-paying debtors is simply a part of the current economy. It is a particular problem for businesses that are growing and deal with a lot of debtors, but could be seen just as clearly across many different industries and companies.
A solution in direct debit software
The trouble is that, no matter what kind of customers you're dealing with, your business isn't immune to this problem. Both individual, personal customers and large, commercial clients are equally likely to drag their heels when paying their invoices in this environment. One possible solution is to invest in ecommerce payment solutions.
By having something like direct debit software in place, the onus for making payments on time is taken off the customer. The appropriate sum is automatically debited from their account and placed into yours, eliminating the risk of late or missed payments. Not only does this mean you have a greater certainty of cash flow when times are tough, but it also represents a general improvement in how your business operates.
"We work with a lot of SMEs, and when you work with SMEs, the one thing that they really need to be seeing is a gain in efficiencies," explained Ms Middlemis.
"With the level of compliance that governments want us to do these days, it's really tough to find hours in your day."
If the challenges of the 2014-15 year continue, having the right tools and resources in place will be crucial for business' success. The resulting efficiency gains will ensure companies will continue to perform well, no matter the conditions of the wider economy.