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The accounting firm highlights a range of strategies for businesses navigating a “complex and uncertain economic environment”.
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RSM outlines survival tips for inflation, rising interest rates
15 June 2023
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14 minute read
Businesses are currently facing an extremely difficult environment with unique challenges impacting a range of different sectors, according to a recent RSM report.
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Despite the many headwinds facing businesses, RSM said businesses can successfully navigate this uncertain period by employing the right strategies, RSM said in its recent thinkBIG report for SMEs.
Technology sector
The technology industry has experienced heightened tension after company valuations saw a notable downturn driven by post-pandemic inflation and rising interest rates.
“As digital transformation projects potentially get put on hold due to caution in other sectors, the tech industry is also facing increased difficulty in terms of customer attraction,” the RSM report stated.
Gaining access to capital has become significantly harder recently, leading many tech companies to tighten their belts and shift their focus from a ‘grow at all costs’ mentality to one more considered and measured.
In the current environment, the report said it will be vital that tech companies ensure every penny is spent wisely and gives the highest possible return on investment.
“With this in mind, make time to evaluate your current marketing spend and look for possible improvements. Measure the return on investment you have been achieving with existing strategies, and seek to exploit the ones that are working and eliminate those that aren’t,” it said.
Companies should also look to prioritise incentives and programs promoting a positive workplace culture.
“The tech industry is notorious for its low staff retention rates, which is an opportunity for you to stand out among the crowd,” the report said.
“The strongest testimonies of a great place to work come from those who already work there, so taking care of existing staff will likely make it easier to attract talented new ones.”
Health sector
The health sector remains in a strong position despite economic uncertainty, with healthcare tending to perform well in times of economic pressure and uncertainty.
“While revenue may be strong, many healthcare organisations are struggling with costs,” the report said.
“The health sector is not immune to staffing challenges, inflation that is feeding supply costs, and the flow-on effect of rising interest rates – areas that are hitting all businesses. Ultimately this leads to higher healthcare costs for patients.”
Given the rise in costs, the RSM report said healthcare businesses need to be across their cash flow in order to remain sustainable.
“Real time data, or as close to it as possible, will help you uncover areas of weakness and opportunity so you can make informed decisions to remain profitable.”
“While profit may seem counterintuitive, your business will not be able to help anyone if it has to close. Using data to maximise revenue per patient or customer should not be anathema to health providers or the health industry.”
Healthcare businesses should also look for ways to leverage technology where possible, according to the report.
“Make time to investigate automated systems, such as exploring the potential for more telehealth services to free up resources, and considering how emerging MedTech – such as wearable devices – could support your patients and your business.”
With healthcare businesses increasingly falling victim to cyber attacks, RSM said businesses in the healthcare sector should also be investing in cyber security.
Construction sector
The construction sector has faced considerable stress in the past 18 months driven by the cost and availability of materials, fixed contracts and labour shortages.
This has impacted property and construction firms of all sizes, with the public collapse of larger entities in turn placing significant strain on the subcontractor community.
“While some remain in a strong position, there is a much higher degree of caution when assessing the feasibility of new projects. Smaller firms are also understandably concerned about getting paid, and have become more proactive in seeking upfront or timely payments,” the report stated.
Companies struggling to meet fixed-price contracts should have an honest conversation with clients and try to negotiate a fair way forward, the report suggested.
“They may be more understanding than you expect, especially when faced with the time delays and excessive costs involved if you’re unable to complete their project,” the report said.
“The outcome may be that they pay a little more and you lose a little less, but it will ultimately ensure the project is completed on time and to a high standard.”
Tracking profit and loss will also be critical, the accounting firm said.
“Invest in putting some rigour around financial processes so you always know where you stand. This includes before, during and after a project – with quality systems in place that can provide real time data from which to make informed decisions.”
Construction businesses may also need to re-assess how they approach projects and contracts.
“For developers, this could involve delaying certain projects until there is more certainty. Or, entering into joint ventures to share the burden of larger developments,” the report said.
“As we move into the future, keep in mind that green building loans and other sustainable finance options are becoming more prevalent – especially as they offer lower interest rates where certain conditions are met.”
Manufacturing
Many businesses in the manufacturing industry are dealing with skills shortages, cash flow concerns and increases in resources costs.
“It’s not easy to balance periods of increased demand with cashflow – let alone when you’re operating in a volatile economy where your own customers may be struggling to pay you,” the report said.
“This is further exacerbated by tougher lending conditions and the increased cost of capital due to so many consecutive interest rate rises.”
One avenue of alternative funding that may provide relief to businesses, said RSM, is the ATO’s research and development (R&D) tax incentive.
While the R&D tax incentive has been in place for many years, it was recently given a boost and now provides greater benefits than ever before for businesses of all sizes.
There may be other state and federal grants businesses can take advantage of as well, the report stated.
Investing in systems ensuring accurate and reliable financial information from which to base decisions is also critical.
“This may require updating your current systems – such as moving from basic accounting software to an ERP platform – and re-organising your processes to ensure you’re capturing all available data,” it said
“Without a single source of truth, it’s very difficult to price products and services accurately and keep on top of your financial state – both of which are essential to weathering the current state of affairs.”
Manufacturing companies should also look to take advantage of automation within production, procurement, sales or administrative areas.
“This will not only make your business more efficient and lower the cost of product and service delivery, but will also help to reduce the impact of the labour shortage,” the report said.
Agribusiness
The agribusiness sector is looking positive with farmers faring well off the back of higher commodity prices and a low tax environment due to the instant asset write-off.
“While most agribusinesses felt the impact of supply chain issues in 2021, these appear to have stabilised. Unfortunately, we cannot say the same about regional land prices which are affecting everything from business growth to succession planning,” the RSM report stated.
A skilled labour shortage is also impacting the sector, particularly in regions where there is a strong mining presence as higher pay rates make it difficult for farms to compete.
“Rising interest rates are also impacting the sector, with debt repayments on land and new equipment rising sharply in the past 12 months,” the report said.
Businesses in this sector will need to go above and beyond to attracting and retaining staff, with skilled workers key to maintaining operations.
“This could include paying bonuses, offering flexible working arrangements, providing extra leave entitlements and investing in training programs. Keep in mind that you may be able to claim a tax deduction of 120 per cent on what you spend on training programs,” RSM said.
“Technology is another avenue for maximising tax deductions, with eligible businesses able to claim 120 per cent on costs associated with digitising operations. Technology can also provide a solution in a scarce labour market, with automation making it easier than ever to free existing staff of manual repetitive tasks so they can focus on activities of more value.”
Agribusinesses should also consider sustainability within this business with the buyers increasingly wanting to see green credentials in the supply chain.
“Your place in the market, and ability to secure capital, could well depend on your ability to demonstrate reduced emissions. Start by understanding your carbon footprint and then look for ways to reduce it,” the report said.
“Farmers are in a unique position to offset their emissions via revenue streams from sustainable projects – however, be sure to do your due diligence before signing any agreements.”
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