Martin Hill – Director, William Buck Australia
The South Australian Business Chamber and William Buck June quarter survey of business expectations show a sharp decline in business confidence that hasn’t been apparent in previous surveys.
With the Reserve Bank focusing on curbing inflation through interest rate hikes to a large extent the results are to be expected but the change in confidence has been stark.
The sudden downturn in confidence could be attributed to heightened optimism during the March quarter, following a strong Christmas and festival period. This is further reinforced by state confidence at the time, sitting 13.2 points above the national confidence index.
The June results shed light on a situation where business owners confront increased stress and heavier workloads, yet these efforts are yielding diminished returns. Businesses report that the cost of operations, profitability, profit margins, as well as staff and skills shortages, are the primary concerns that keep them awake at night.
These concerns are reinforced by high-interest rates, elevated input costs, labour shortages, and declining sales. As a result, business confidence and conditions resemble those experienced during the global financial crisis.
This quarter’s analysis makes it evident inflationary pressures are significantly impacting businesses. Among the respondents, 31% say inflation has a substantial effect on their operations, while 46% acknowledge a moderate impact.
It’s worth noting smaller businesses are disproportionately affected by these conditions. Those most severely impacted are often those who can least afford it, while businesses with more financial resilience continue to operate on narrower profit margins.
Industries reliant on discretionary spending, like retail, hospitality, and entertainment, bear the brunt of these measures. Even non-discretionary businesses face related challenges due to rising wages, energy costs, rent hikes, and growing insurance premiums.
Importantly, business owners should see comfort in the current conditions being transitory, and how they navigate through this turbulence could significantly influence their performance as the economy gradually stabilises.
It is important for business owners to make allowances with their time to truly understand their businesses. This means gaining a deeper understanding of their financials, and emphasising strategy development. I understand that this transition is indeed easier said than done, especially when 49% of business owners reveal that staff and skills shortages are keeping them awake at night.
I encourage businesses contemplating changes or exploring ‘quick fixes’ during tough times to approach them with a long-term strategic lens.
When considering discounts or price cuts to weather the economic storm, it’s essential to evaluate their potential long-term impacts.
For those facing financial constraints, or anticipating them, exploring adjustments to business loans, such as reduced repayments or extended terms, could be viable options.
Importantly, this advice holds true even in more favourable economic circumstances. Focusing on strategy becomes even more critical during good times and can serve as a buffer when challenges inevitably arise.
Present conditions are essentially lingering effects of the COVID-19 pandemic. It’s critical for businesses to maintain the optimistic outlook they have upheld in recent years.
While it’s difficult to acknowledge, the economic challenges faced today indicate the current strategies aimed at healing the post-COVID economy are yielding results. Although it might take some time for the RBA to monitor for effect certainty, the current downturn demonstrates that brighter days are on the horizon.
The full results and economic analysis of this quarter’s the South Australian Business Chamber, William Buck survey of Business Expectations can be found at business-sa.com/businessnow