Media coverage of some mooted inclusions in the Australian Government's federal budget, which will be tabled by the Treasurer, Joe Hockey, on Tuesday 13th May 2014 are preparing us for the worst. The budget has been prepared with a chequered background of economic indicators, including:
- sluggish volume growth in the Australian economy, currently around 2% (approximately 50% of the expected volume growth)
- slight increase in unemployment rate to 5.8%
- sales rising slightly
- Consumer Price Index (CPI) is currently 2.5% - this has slightly increased over the last few months and will start to place pressure on interest rates
- historically low official interest rates of 2.5%
- a well performing stock market
- there has been closure of some major business operations in Australia; and
- residential property sales, particularly in the major cities are back on the boil.
The Federal Budget deficit is being forecast at amounts ranging from $20billion to $50billion.
The challenge for the government is to
- ignore fixing the financial situation;
- delay addressing it; or
- act and do something about it.
None of these are palatable. This highlights the issues with which the Federal government is confronted.
Some parallels for Business Owners
The government's dilemma is no different from any small to medium sized business operator. What do you do about it? You either increase revenue which, in the government's case, means raising taxation, or you reduce expenditure (which, in the government's case, would probably mean reductions in pensions, allocations for education, health, defence, government grants and more).
Whilst the government is planning Australia's budget, business owners should be planning our budgets for 2014/15 over the next few weeks. Address questions such as:
- Is it realistic to believe that you can increase your revenue?
- Can costs be reduced?
- Are you monitoring debtors' days outstanding, stock turn and the overall investment in working capital?
- Is capital expenditure necessary at this time?
Most economists are now forecasting an increase in interest rates during this year, so factor increased interest costs into your budgets.
In preparing a budget, it's a good idea to prepare it on at least three sets of assumptions:
- What you really expect to happen
- Make a best case forecast
- Make a worst case forecast.
This will allow you to see if you're able to internally finance each of these assumptions, or if you need to have discussions with your banker.
For assistance in preparing budgets and cashflow forecasts and the preparation or update of your business plan for 2014/15 to deliver into these, please contact your usual Hanrick Curran Adviser or ask for Matthew Beasley on 07 3218 3900.