There are a lot of people in Australia who are currently very worried about the economy, and their families’ current and future finances.

Its certainly true that, for those of us who are struggling to afford a reasonable place to rent or may have recently taken on a lot of mortgage debt, this is a pretty tough time.  And if you are also trying to launch or grow a new business, there is probably more stress to deal with.

However some of us might be doing reasonably well financially, even though we may not feel like we are.  Which is why, in the USA, where consumer sentiments and economic trends have many similarities to ours, the emerging term for this apparent contradiction is “the feel bad economy”.

Let’s Take the Public “Pulse”

In fact there are many signs in the USA that people are saying one thing about the broader economy, but actually doing another with their own money.  Similarly, in Australia:

• The latest Westpac Consumer Sentiment report shows the index at “deeply pessimistic levels”.
• Yet retail sales rose by 2% in September 2023 vs September 2022 – closely mirroring GDP growth for the same period.

Why is that important ?  Because Australia is now a predominantly services based economy, and GDP growth largely rises and falls compared to long term averages based on variations in consumer spending patterns.

No wonder so many Australian businesses are at least holding their own right now, but worry that we are about to go into a recession.

So what might business owners do to navigate that apparent contradiction ?

Be Sure About What You Know, vs How You Feel

Business owners have feelings too, however in an increasingly complex world, today’s business owners need real data more than ever.

So let’s have a look at some of the big data out there, compared to the last time we had a “normal” recession in Australia, way back in 1992.  It reveals a very different current economic and business world compared to the one some people might expect:

In 1992 we had stamped out inflation, but interest rates remained high and the economy was stalled.  Many people lost their jobs as a consequence.  And, yes, it truly was a dreadful time to be running many businesses.

In 2023, however, we see a much better story:

• Our overall economy is still growing, in large part because of high net immigration which will continue to stimulate the economy and provide additional labour reserves for the longer term.

• There is more evidence that interest rates are close to their peak and supply side inflation threats are weakening.

• Increased wages growth at 4% is allowing average earnings to stay within sight of rising prices, yet there are few signs of an “inflationary breakout”.

• While the pace of new job creation has dropped, there are actually few signs of mass layoffs, because good people are still hard to hire.

• Australian households are still saving, on average, between 3% and 4% of their earnings and we are still getting wealthier as a nation.

Of course those statistics only speak to “aggregates and averages”.  Those of us with high mortgages and who are susceptible to variable interest rates are finding it tougher, but they are actually the minority of Australian households.  At least housing prices have recovered from the 2022-23 losses when interest rates started rising, off the back of population growth and low new housing starts, so there are very few homeowners with negative equity.

So the “big picture” data strongly suggests that business owners are right to be cautious about the future, but perhaps there are more reasons to be reasonably confident than to be pessimistic – something that the latest NAB SME Business Survey results appear to echo.  It also reinforces the importance of having more detailed data about how your business in particular might be impacted – if you were only selling expensive consumer goods or experiences to young renters or new homebuyers, you would be right to be concerned.

Hold Your Nerve, When Others are Losing Theirs

We’ve recently met new clients that are so worried about the future of their businesses that they don’t sleep at night, even when the facts suggest that their businesses are actually doing reasonably well.  Sometimes those worries are so high that they think about selling out or even just walking away from their business, rather than continuing to operate them until better times.  And if they do sell out, they lack the confidence to bargain for a fair price.

First of all, if your business is at least paying its way in uncertain times, there is a high chance that it will do better, and become more valuable, when broader economic conditions improve, everything else being equal.

Secondly, many of the wily investors who are cashed up and buying businesses right now will feel cheated if they have to pay “full value” – so it’s harder than usual proving to bargain hunters how much your business is really worth.

Now I’m not saying that you should hold on to a declining business indefinitely.  Instead, why don’t you take the time to do some necessary “repairs and maintenance” to improve its value, for when it is time to sell on fair terms ?  Or at least get a better deal if you have to sell sooner rather than later ?

And of course if your business is at risk of failure, because it is highly exposed to the tougher aspects of the current economy and is undercapitalised, you need to know exactly where you stand and take prompt action to avoid insolvency risks.

Stay Close to Your Competitors

Back in early September 2001, I signed a contract to join a major Australian inbound tour operator just a few days before “September 11”.  The Al Qaeda attacks in the USA shut down global aviation immediately, tourist travel into Australia stopped and Ansett Airlines also collapsed for other reasons.

So when I started work a couple of weeks later, the Australian tourism industry was “melting down”.  Our business survived with a lot of hard work and necessary changes, but many of our underresourced competitors didn’t.  Some of the better capitalised and positioned market players moved quickly to acquire complementary businesses on the cheap, or otherwise pick up their best customers and people when they failed.  Not only did they achieve higher economies of scale, they also reduced longer term competitive pressures on customer and supplier prices and made it easier to hire, retain and develop the best staff.

So stay close to your competitors, and be prepared to invest if you have the capacity and the opportunity is genuinely valuable.  However:

• Be sure that you know what fair value looks like for any potential acquisition, so that you are clear whether there is really a bargain to be had.

• Make sure that you have the right advisers involved, so that you cover any “M&A” process blindsides you might have.  For example, due diligence becomes doubly important when the target business might be starting to struggle.

• Don’t lose sight of your own business, and be necessarily sceptical about expected “synergies” from any merger – most acquirers overestimate them.

Tweak What You Can

If you’re not sure about scaling up, you might instead be able to identify and capitalise on subtle market changes.  For example:

• Are consumers actually spending more on cheaper per unit purchases that you can promote, as a quasi-substitute for not being prepared to spend more on major outlays, like overseas holidays or renovations ?

• If some consumer segments are doing better than others, might you be able to reposition your marketing focus on them ?  Right now, older consumers without high mortgages are actually spending more than previously on discretionary purchases, in part because they are earning more interest on their savings.

Its clear from both of the above examples that you will need reliable data and market insights, and have a business that is genuinely agile to take better advantage of changing market dynamics than your competitors.

No-one Knows Everything.  So Get the Right Help.

When we’re stressed as individuals, it makes sense to check in with experts we trust, like the family doctor.  And its no difference in business – a great business adviser can help you in many ways to:

• Distinguish facts from feelings, so that you are basing your decisions on the right inputs and processes.

• Create a value for money Strategic Plan, so that you know how to achieve your goals, seize your opportunities and manage your risks.

• Determine the best specialists to help you solve your most critical problems.

• Suggest realistic options that might suit your  your business and current circumstances

• Give you the confidence and clarity that its ok to feel bad sometimes, but still focus on doing what is necessary to make your business more profitable and valuable, even in tough times.

This Too Shall Pass…

You will have noted already from the references to 1992 and 2001 that I’ve been around for a while.  If there are just five big lessons that I have learned since I started work way back in 1986, through a couple of recessions, the “Tech Wreck” of 2000-2001, the GFC of 2009-2009 and finally the Pandemic Recession of 2020, they are:

• Australia is still a very attractive country to live and work in, so we continue to attract migrants that bring new skills and stimulate the economy as a whole.

• Monetary policy does work to tame inflation, although its brutal for new borrowers with big mortgages and variable interest rates, some of whom also have high student debts.

• There are always business investment opportunities in a crisis.

• Every business problem has happened before to someone else, so good advisers can help you figure out what to do to solve them.

• As a business owner or leader, the most certain way to fail is to give in to your fears of failure, and to be passive in the face of adversity.

… So Let’s Get to Work

If you are serious about taking charge of your business’s future, when others are waiting to see what happens and making excuses for not achieving their goals, then you should book a call with us today.

And for those people who are doing it tough right now, hang in there. There are growing signs that interest rates and inflation are likely to fall over 2024,, so I’m reasonably confident that most of you will be feeling more optimistic by this time next year.