Three major issues confronting your small business today

It has never been a more challenging time to run a small business in Australia. As well as dealing with the rampant pace of technological change, business leaders are currently confronting a number of major uncertain events that threaten impact their bottom lines to varying degrees. These range from political and regulatory risks arising from the fallout from banking Royal Commission findings and a heated mid-year election campaign to a possible economic slowdown.

Fallout from the Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry laid bare a litany of disturbingly poor business practices on the part of many industry participants. After being wrapped over the knuckles repeatedly, large banks reacted by further tightening underwriting standards to comply with responsible lending obligations.

However, the large banks have arguably over reacted, tightening underwriting requirements to the point where it is extremely difficult for small business to secure credit. How small businesses navigate this environment and the ability to secure required capital will be a major determinant of their success in short to mid-term.

Fortunately, non-bank lending options such as invoice finance are available for business owners to explore. With invoice finance, the level of funding availability grows in line with sales. Credit availability isn’t affected by drops in property values like forms of credit using personal property as security are.

Likely change of government

The polls are indicating the strong possibility of a change of government at this year’s Federal Election in May. Business lobbyists are already schmoozing with Labor’s shadow ministers in anticipation of a win over the coalition. Meanwhile commentators are picking that the small-business sector, as the backbone of the economy, will be the battleground where the election is fought and that the small-business economic voting group could be decisive in deciding final results.

Having an understanding of the likely business impacts of a Shorten Labor Government will help your business be more prepared for the changes. At this point, Labor has:

  • Been highly critical of the Morrison Government’s corporate tax cuts.
  • Said it wants to close tax loopholes and the use of family trusts to minimise tax.
  • Flagged a crackdown on abuse of labour hire and 457 visas.
  • Supported the re-introduction of penalty rates.
  • Supported the narrowing of the gender pay gap.
  • Supported tax cuts for low and middle-income earners.
  • Promised to stop businesses avoiding obligations by forcing workers to become contractors.
  • Said it wants to speed up the transition to renewable energy.

Being prepared for possible changes to tax rates and other legislative changes allows business owners to make much more informed decisions in relation to business planning. For example, it might be prudent to increase your cash buffer if your business is likely to be impacted by changes to penalty rates or contracting arrangements, or an increase in wages growth overall.

Possible global economic slowdown

Two major economies are forecast to trigger a slowdown in the global economy in 2019; The slowdown of the US economy after the removal of fiscal stimulus and the Chinese economy coming off the boil after years of rampant growth. There is also damage being done to both economies via the ongoing trade war and the isolationist trade policies of the Trump administration.

As the old saying goes, “when the US sneezes, Australia catches a cold”. The American economy now has less influence on the Australian economy than it used to, but China is our biggest trading partner, meaning that a drop in Chinese demand for Australian exports would have economy-wide consequences. Again, increasing the holding of cash on the balance sheet now could help insulate your business from the worst of any economic downturn that emerges this year.

Greg Charlwood, Managing Director, Australian Invoice Finance