War attack on businesses

With the exception of those producing armaments, the first Trump War is creating  problems for Australian family businesses. SMEs and micro businesses are in a constant battle for survival even without a real war. Two distinct issues, liquidity and profit, currently face family businesses with loans from their banks or other lenders. It does not make much difference what size the business is. They may be SMEs or they may be micro-businesses. In addition to my national  GBAC Chartered Accountancy practice I ran three family businesses, all totally different in size and nature. Two carried substantial debt at some time.

Debt Free and Happy to be so

They can all be affected by government decisions ( foreign or local), seasonal conditions and commodity prices. Right now  many Australians are affected by all three. If they are running debt-free the impact is less. It can still be painfully bad but owners can usually hunker down and live through it. There is an inherent happiness for the business owner who has cleared out all their bank mortgage debts. Their assets are not directly on the line. Trade creditors are a major factor. One of my equipment hire businesses had creditor problems and was struggling for a while in one of the recessions. I tried to help the managers sort it out.

Do it properly!

However my most senior accounting professional came to me one day and said, " Greg, for heavens sake treat your hire company as a business debt consultant of GBAC and get their creditors sorted out properly and pay us for your time."

Save something out of sales

I took his advice, scheduled and contacted the creditors. Their payments were all programmed and GBAC never missed a promised payment. At the same time I took control of all ordering and spending. In doing so I decided to move $100 out of the company's transaction account each week and put it in a savings account at a separate bank. It was not much, just a start.

Build a buffer

Within 6 months creditors were back within terms and I had increased the savings to $500 a week. Then it went to $1,000 a week and it kept rising. We built up a great buffer against the next recession. Previously we had been spending more than what came in. By reducing the amount in the transaction account I had reduced the spending. It is so easy to spend money when it is sitting in front of you.

Rising prices

The first reaction to rising costs is to increase prices. But that is a two-edged sword. Increased prices may cover increased input costs, or they may result in a loss of sales just as expenses are rising. The other problem either way is the prospect of lower profits. That can be okay if  the owner does not have high personal costs, like family, children, teens or loan repayments. But after a while even that puts great strain on everyone concerned.

Loan Repayments

Loan repayments are the ones that can least easily ignored. Unlike the family, the moneylender depends on repayments for its own profits. On the other hand, most moneylenders are making mountains of money. One look at major bank CEO salary packages of up to $1 million a month tells us that those lenders do have room to make concessions. Last year our big 4 banks earned almost $30 billion between them. If tackled carefully and strategically in private negotiations, they can well afford to help their borrowers out.  

Debt Repayment Concessions cost

However, it is important to understand that giving stressed borrowers a break does work against the bank. Tough times is when banks begin to get more people into debt. Later those people may find it hard to cope with. New borrowers who battle to cope with repayments deliver banks excellent profits by way of interest over many years. If they end up trapped in a Debt Trap they will deliver their banks even more  money over the decades. Whilst a repayment concession may cost the bank a bit, it will not stop the inflow of new borrowers. However, GBAC has seen instances of borrowers being cheated badly when they have sought concessions with repayments. So engaging a skilled and qualified business debt consultant can inject a good measure of caution into the varying of loan terms.