Interest rate rise impact on SMEs a reminder to stay resilient

Tuesday 7th November 2023

Interest rate rise impact on SMEs a reminder to stay resilient

Tuesday 7th November 2023
Written by Scott Brooks

Has your business been impacted by the recent interest rate rises?

Accountants Daily recently published an article showing that with every interest rate rise comes a sharp downturn in consumer purchases—something that’s having a negative impact on small businesses.  

This insight comes from accounting software company MYOB, with data from its customer base showing that each rate increase by the Reserve Bank of Australia (RBA) has sent small business cash and electronic funds transfer (EFT) deposits ‘spiking south’. 

Here’s a quick rundown of the details and what you can do to stay resilient. 

Cash and EFT deposits down on previous years

According to MYOB, from June, cash deposits have started dropping compared to the first half of 2023. This is a shift from previous years, where cash deposit rates tend to increase as the year progresses. 

In addition to this, EFT deposits, seen as an indicator of health for consumer-facing businesses such as retail and hospitality, are flat compared to the growth they saw in 2022. 

This data suggests that small businesses are not doing as well as they did in 2021-22. Some are starting to do it tough, and overall, there has been a slight decrease in savings balances. 

November's rise in interest rates could spell danger 

Unfortunately, the November 7 interest rate rise could be too much for many small businesses—the lifeblood of the economy—particularly those in retail and hospitality. It would mean SMEs struggling to meet their sales targets in what’s usually a peak period.  

The article goes on to say that if businesses aren’t closely monitoring trends, they might over-order stock and then be faced with the cash not flowing in, resulting in January discounts. 

A reminder to stay aware and resilient 

This fresh insight into interest rates serves as a pertinent reminder that we must continually assess and review our businesses as small business owners. We need to do this both in terms of its strengths and any trends that could negatively impact it. 

Negative trends could include:

  • Overall financial performance
  • Reduced sales
  • Fewer enquiries
  • Reduction in average dollar spends
  • Declining bank balances

From a non-financial perspective, it’s a reminder to talk to our suppliers and clients to ensure they stay ahead of the game regarding what threats may exist and what opportunities can be explored.

Some key actions to take as a business owner include:

  • Continually review your financial trading performance
  • Consider short-term cash flow projections
  • Review debtor lists to ensure no problem accounts that could become bad or difficult to collect 
  • If in debt, review things like interest rates and terms of finance, which could be extended if that might assist cash flow

Related: Financial projections 101: profit and cash flow

How to protect yourself personally 

As well as serving as a prompt to continually assess and review your business, this interest rate rise impact on consumer spending should also be a reminder that we’re expecting tougher times. This means you must ensure you’re not living beyond your means personally. 

Assessing this could include reviewing your own personal cash flow position and projection and perhaps curbing spending where necessary. When you do spend, consider shopping local to help fellow small businesses out. 

In addition, continue to look at where your personal income is being generated and ensure that your channel of funds isn’t under any pressure—or potentially could be.

If you’re finding yourself doing well in these times, despite the rise in interest rates, perhaps look to more opportunities from an investment or at lifestyle choices that can be made to take advantage of potentially lower pricing. 

Adaptability and proactivity equal resilience 

Each recent interest rate rise has curbed consumer spending and hit small Australian businesses hard. Unfortunately, the most recent rate increase could spell even more trouble, especially for sectors like retail and hospitality.  

To thrive during this time, you must continuously assess your business finances, monitor cash flow and communicate with partners. On a personal level, it's crucial to budget wisely and explore investment opportunities if your situation allows.  

Adaptability and proactivity really are the keys to resilience. They’ll ensure you emerge stronger in the face of economic challenges. 

If you want help with projections and reviewing your current position, reach out to your Maxim advisor or get in touch with our team.