Without a doubt, 2022 has been a turbulent year for Australians, particularly those in business.
There’s been extensive discussion around the recent interest rate rise and ongoing effects this will have on mortgage holders and household budgets. However, there has been limited discussion on how this will affect Australian small businesses, many of which are franchises like Poolwerx’ small businesses.
As a large number of consumers are left with reduced disposable income as a result of the latest rate rise, their spending will go down which will inevitably affect a lot of small business service providers going into the new year. In particular, ‘luxury’ or ‘desirable’ products and services could face devastating effects.
Also affecting small businesses is the cost of those rising rates to their own financial situation. Rising interest rates are designed to slow inflation by making borrowing money more expensive and far less appealing. Since the first official cash rate hike earlier in 2022, borrowing power has decreased about 20%. In addition to increasing borrowing costs, rising inflation will make obtaining loans and sustaining growth more difficult. This will impact a substantial number of businesses currently paying off their business credit lines or planning to apply for business financing in the near future.
Most small businesses will aspire to grow but a company’s growth potential decreases dramatically when it is faced with greater debt and other external pressures. Back in June, 46% of businesses experienced increases in their operating expenses over the previous month compared to 21% of businesses in June 2021. Pair that with ongoing HR workforce challenges felt right across the country in most industries, and the continued rise in interest rates, and it’s safe to say that small business owners are among the most concerned about what the future holds – particularly those with high debt and low capital.
Now more than ever, business owners must re-strategise, and look at what they’re offering consumers as part of their main line of service. This may mean readjusting the products and services they offer or lowering overheads in order to make way for lower demand. At Poolwerx, we have a ‘hub and spoke’ aspect to our business model which allows our clients to flex between DIY and service offerings with ease. Models like this enable franchise owners to be protected through offering multiple options to our clients.
It is likely that we’ll see continued price rises in the new year as well as interest rate increases. But it’s not all doom and gloom. Strategising and listening to your customers and clients while balancing revenue and costs is key for 2023.
In Poolwerx’ case, we set up a support centre to provide assistance to our franchise partners so they can deliver a high-standard client service while maximising profitability. Although aggressive, rising interest rates are generally a response to economic growth which is hopeful to hear for many of us. As the economy improves, interest rates increase and when the economy is declining, interest rates reduce. It’s a sure sign of a healthier market on the horizon.
As we continue to live a post-COVID normal life, it’s important to reflect on the past to plan for the future. We need to lean on our biggest learnings from the pandemic and consider how these can be heightened moving forward. The rising cost of living, coupled with interest rate hikes, will force Australian businesses to find efficiencies and reduce operating costs, to avoid driving clients and customers away.
Poolwerx introduced a range of options to suit a range of customers’ budget. They can have their pool serviced or head in-store for a free water test and analysis to guide their own maintenance. This ensures that our clients are being sold what they need as opposed to buying in bulk and spending money on items that they don’t require. Offering value along with a customised approach will help your customers cope with these cost rises.
Poolwerx has experienced a number of recessions during its three decades in business. Overall, our business grew in the last recession and we have many more retail outlets than we did in the prior period. For small businesses, these are uncertain times but with precision planning, the correct tools and continued support, we can ride the wave to calmer waters.
Nic Brill is CEO of Poolwerx.