In March, the RBA Board increased the cash rate target by 25 basis points to 3.60%, the tenth consecutive monthly increase, but the good news is in April they halted a rise. Still, interest rates are higher than they have been in years.

So what does that mean for you?

Well, rising prices and interest rates don’t just mean higher borrowing costs; they can affect almost every aspect of your business including reduced sales, higher expenses, and pressure to boost wages.  

This means it’s more important than ever to keep an eye on the numbers in your business and be prepared to take action.

Here’s what we suggest:

1. Examine your pricing and profit margins

The easiest way to boost profit is to adjust your pricing; however, this isn’t always straightforward. While consumers are accustomed to rising prices with inflation, that doesn’t mean anyone is happy about it.

So, dive into your books and get a good understanding of the gross profit margin for each of your products and/or services. If your costs are increasing, you may have justification to make a proportional increase in your prices to maintain or improve margins. Or, you may find there is space to adjust one product or create a new higher-value offering. 

2. Evaluate your expenses

Look at expenses and see if you have any opportunities for savings. This includes reviewing your financing options to negotiate the best possible terms; seeking a discount on rent or downsizing if many of your staff are still working from home; and/or outsourcing tasks that are taking up too much staff time such as basic admin. 

Now is also a great time to check for any deals on essential services like phone, internet, energy and insurance — many providers run promotions to switch around EOFY.

3. Build up a working capital buffer

Maintaining an adequate amount of working capital is a smart strategy to safeguard your business against rising interest rates and unforeseen expenses. Whether that is a variable rate business loan, an overdraft facility, or something else entirely, extra working capital can help cover expenses while you adjust your business. 

We’ve seen several clients that operate with overdraft facilities for years, which has allowed them to be able to have low working capital and – as a bonus – invest greatly outside of their business.

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Need help developing a strategy to manage your cashflow? Chat with your Hatcher advisor or drop us a line.