Business tips Australia

Interest Rates are rising?

4 TIPS for managing your business when interest rates rise

Your local bank might not like this post.

As the economy shifts into the next phase of the interest rate cycle, now is the time to reassess your company's approach to ensure you're prepared for the changes.

It is possible that even well-established companies that have weathered previous rate cycles successfully will need to revise the assumptions that inform their current projections. No matter how long or how far the tightening cycle stretches, now is a good moment to assess your company strategy and make sure you're well prepared.

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How could rising rates and inflation affect your business?

❌ Less sales - since buyers may be especially sensitive to increases in interest rates.

❌ Increasing Expenses - If inflation is going up around the world, it's likely that stock and raw materials will cost more, which could put pressure on your margins.

❌ Wage Rising - Since unemployment is low and prices are going up, some businesses may feel pressured to raise wages to find and keep the workers they need.

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Here are 4 strategies to help you prepare when Interest rates go up again:

#1 - Review your Business expenses

Develop a mindset that prioritizes limiting spending. 

While a company's leaders should take the lead in cutting costs, the best results will come from instilling a culture of efficiency throughout the organization. Now is an excellent time to examine corporate costs and find places where cuts might be made.

So that your company's resources can be put toward its core competencies rather than administrative tasks, it is wise to keep an eye out for possibilities to outsource such tasks to other companies.

#2 - Review your Profit and Margins

Start by looking at your profit and loss statement to see where your money is going. Then, you can work your way down the list of expenses from highest to lowest.

Next, raising your prices is the quickest and easiest way to improve your margins and profitability, since every extra dollar goes straight to your bottom line. When prices are going up across the board, your customers may be more willing to accept price changes than when inflation was low.

- Figure out how much gross profit each of your products or services brings in.

- Think about how you can make low-margin activities more profitable or just focus on products and services with higher margins.

- Think about whether you can raise the prices of certain products, services, or customers, or if you can make higher-priced versions of what you already offer.

- If your costs are going up, make sure your prices go up at the same rate so you can keep or improve your margins.

#3 - Make a buffer of working capital

Cost reduction needs to come from the top down, but it works best when everyone in the business is responsible for making sure the business runs as efficiently as possible.

- Make sure costs are tracked and put into the right categories

- Make budgets for key employees and teams in your business and then giving them the responsibility of keeping costs within the limits you've set.

- Set key performance indicators (KPIs) and give the right rewards to staff when they do a good job of managing costs.

- Set up meetings with your staff for various ideas on how to save money and improve productivity.

- Set up regular reviews of key metrics, such as fixed costs, cost of sales, gross and net margins, and budget variances.

#4 - Get a business health checkup

Pay attention to what your business do best.

When you update your business plan, you can also confirm your strategic direction and give your team a new focus. 

Focusing on your core business helps you save money and work more efficiently by building a successful, repeatable formula for consistently delivering the same product or service, rather than trying to be everything to everyone.

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Be prepared, stay prepared with The Lynden Group.

For expert advice tailored to your unique business situation, contact us!