Successive interest rate rises have triggered a sense of economic doom and business owners are shelving growth plans and putting off paying their bills, a new SmartCompany poll reveals.
IT companies serving the B2B market could be hardest hit, with the poll pointing to a sharp wind-back in business spending on hardware and software.
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An overwhelming 85% of 110 small and medium sized business owners polled over the past week by SmartCompany agreed that we are heading into an economic downturn, with 62% saying they will change their business plans as a consequence.
That contrasts dramatically with a SmartCompany poll conducted in February, when just 28% of business owners said rising interest rates and the credit squeeze were directly affecting them.
The number of businesses putting growth plans on hold has also increased substantially, up from 31% in February to 60% in the latest poll.
The poll shows how Australian business owners are responding to tougher economic times.
1. Hiring less staff/Laying off some
Top of the list of measures business owners are implementing is hiring less staff, with 69% saying they won’t take on new staff and 36% planning to lay off workers.
2. Spending less on IT
And in bad news for the IT sector, many businesses will cut spending on computer gear (67% on hardware and 61% on software) and telecoms equipment in an effort to trim costs.
3. Slow down bill payment
Over 63% of businesses owners are also planning to delay paying their bills, suggesting that those companies with a focus on the B2B market could be in for a cash-flow squeeze.
Quick bill payment is often the first thing to go when businesses are trying to cut back, but Dun & Bradstreet chief executive Christine Christian says it can be a self-defeating tactic.
“It is a strategy that often hurts small business because often they don’t have the size and strength to enforce tighter terms,” Christian says. “The problem is it has a cyclical effect; one holds back, the business affected is also forced to take the same strategy, and it drags more and more people into the late payment cycle.”
4. Cut advertising budget, but not marketing
Almost 60% of respondents said they would cut advertising budgets, but only 44% said they would be cutting marketing.
That marketing is being spared could reflect a dual focus on cutting back internal costs while continuing to seek opportunities in the market, according to accounting firm Hayes Knight senior partner Greg Hayes.
“Good business people are very focused on health and hygiene – management of receivables and inventories for example – but they are not laying down and dying when it comes to creating business. There are some good opportunities in tough times, and they are out there and pushing for those,” Hayes says.
5. Cut back on inventory
Almost 64% of respondents said they are cutting back on inventory.
6. Borrow less
Unsurprisingly perhaps as the cost of credit rises, half of respondents said they are planning to borrow less.
The bottom line is clear. The Reserve Bank of Australia’s anti-inflation campaign of interest rate rises is working, and business owners are feeling the pain.