Success Strategies for the New Rate Environment
In recent months, the Reserve Bank of Australia has opted to keep official interest rates stable. Tuesday 5 September marked the third consecutive month without change. While this decision might come with a sigh of relief, as a business owner it’s essential to understand the implications (don’t worry this isn’t an economics lesson – well maybe one paragraph.).
Interest Rates and the Economy
The impact of previous interest rate hikes is still rippling through the economy. We are witnessing sustained declines in inflation, slowing economic growth, and a gradual uptick in unemployment rates—a pattern intended during a cycle of interest rate increases. Prominent economists are now predicting that we will likely see interest rates remain steady for the next 3-6 months, with some even speculating on a potential future rate cut (although the timing remains uncertain for now).
Implications for Business Owners
So, what do these developments mean for us?
- Evaluating Your Interest Rate Strategy
If you’ve been vigilant in managing your business’s finances amid rising interest rates, the situation is unlikely to worsen, barring independent rate increases by your bank. If you haven’t yet considered locking in your interest rates, the need may have passed as the downside risks of variable rates are generally considered to be lower now. With that said, and even noting that the number of businesses opting for fixed rates has significantly decreased, it’s essential to consult with your bank and accountant to make the right choice for your business.
- Preparing for Rate Expiry
For those of you who still have low fixed rates from 2-3 years ago, enjoy the benefit while it lasts, but prepare for the impending rate expiry, which may lead to considerable interest and repayment increases. Engage with your bank, loan specialist, or mortgage broker to secure the best possible deal. Conduct calculations well in advance—3-6 months before the rate expires—to anticipate your new repayments. Next jump in and start paying the new increased amount early. This proactive approach can highlight the need to bolster sales or trim expenses, ensuring a smooth transition.
- Attracting and Retaining Talent
The rising unemployment rate suggests a shift in hiring conditions. However, in reality the labour market has simply moved from ‘extremely tight’ to ‘very tight’. As a business owner, it’s essential to continually enhance the attractiveness of your business to potential employees. Consider factors like pay, working conditions, flexibility, learning opportunities, company culture, and support. Engaged and satisfied employees tend to be more productive and creative, going the extra mile for your business. Explore funded training and educational opportunities through institutions like TAFE Qld and tap into local council and state government resources, including assistance and grant funding, to support growth.
- Marketing Your Business for Upcoming Sales Periods
With major sales periods such as Halloween, Black Friday, Cyber Monday, Christmas, New Year’s, and the back-to-school season approaching, now is the time to strategise your marketing efforts. Some of these have traditionally been U.S. based sales, though many Aussie businesses have jumped on the bandwagon in recent years. Seek insights from professionals like your business coach, bookkeeper, and accountant. Leverage the available support to position your business for success. Investment in your business today can translate into both short-term and longer-term growth.
Embrace Proactivity
In a landscape of changing interest rates and economic dynamics, the key takeaway is to remain proactive. While it’s tempting to breathe a sigh of relief at the prospect of stable rates, the true opportunity lies in taking action. Position yourself, your team, and your business for a prosperous year ahead by embracing change and investing in your business’s future. Start the conversations today as staying in motion will undoubtedly set the stage for long-term success.