3 things to know about cashflow in 2022

When I wrote the article on the five external forces affecting Australian businesses earlier this year, I predicted continued chaos for the business world. The second force on my list referenced political standoffs - one of which became critical soon after publishing that blog.

This has understandably created further complications and uncertainty for businesses - especially wholesale and distribution businesses relying on supplies and transportation.

The impacts of the war in Ukraine have affected far more than supply lines and prices of fuel, and we're watching as inflation rates skyrocket in almost every economy. And this is affecting Australian businesses across the board - including their cash flow.

And while not many Australian businesses will have direct contact with eastern Europe, they are also being affected by the zero-COVID policies in many of the countries from which they source their supplies. Ongoing delays due to lockdowns and shutdowns are making it difficult to predict when they’ll receive their shipments and causing further uncertainty for their customers.

So what can Australian businesses have to look out for as we move closer to the end of the year, and how can they mitigate these effects?

3 ways your cashflow will be affected in 2022

Australia is largely an import nation and we're being affected by the goings-on of the world regardless of our place in them. It's the smart businesses that accept this truth and try their best to understand their situation that have a higher chance of pulling through.

Right now, I'm seeing three ways that your cashflow will be affected by conflict, skyrocketing fuel and gas prices, and supply chain disruptions:

1. Inflation & higher interest rates

Forecasts are showing that inflation will reach up to 7.75% by the end of this year. As the Reserve Bank does its best to counteract this by increasing interest rates, businesses will be having a harder time securing loans and customers will have a smaller disposable income to spend on goods. Reassuring customers and growing their loyalty is key.

2. Low unemployment rates

Surprisingly, unemployment rates are at their record lowest in Australia, which is not often correlated with rising inflation and rising interest rates, albeit from a historically low base. In fact, stagflation (high unemployment and high interest rates) is more likely in this scenario.

But while prices are rising, wages aren’t. This means that the labour market is incredibly tight, and employers are fighting to retain their talent as finding new employees is considerably more challenging - and expensive.

3. Fixed term contracts & rising costs

Many large businesses are on fixed-term contracts, which means that their material prices are going through the roof as they were negotiated before prices rose. We're already seeing businesses become impacted by this, with several construction firms collapsing in the recent weeks because they could no longer afford the cost of their materials.

How should you counteract these impacts and improve your cashflow?

While these three factors can significantly affect your business and cashflow, there are also ways to mitigate future disasters and damage through preparation and action.

While making a profit is important, having consistent cashflow should be your goal. Some recommended strategies to achieving cashflow consistency include:

Rethinking your pricing strategy - pay as you go models are growing in popularity for good reason. By charging your customers monthly, you're able to guarantee a certain amount of revenue each month. This will also allow you to adjust your pricing more flexibly based on inflation, rather than staying on a lower cost needlessly for a year.

Improving your employee engagement - with the high cost and time it takes to replace employees, it's vital that businesses start doing more to retain and nurture them. Simply asking employees what could be better is a good start, as well as thinking about the benefits that would make people want to stay at your business. One way to improve communications and make their jobs easier is to ensure that your business systems are easy to use and aren't siloed.

Investing in customer loyalty - while there are supply delays to deal with, communicating with customers and adding personal touches to their interactions with you can help reduce uncertainty and their desire to leave. One way to do this is invest in an ERP with a comprehensive CRM that allows you to better understand where each customer is, what they need, and how to get them to stay so that you can build more effective marketing campaigns.

Consistent cashflow rewards businesses

Utilising more creative strategies and technology to improve your cashflow, your business will have a better outlook on the future. A consistent cashflow means that your business can:

  • Budget accurately - consistency in cashflow means that any budget you put out has a higher chance of being met. Consistency gives you the confidence to say, "Given that I've got this amount of money right at this month, then I can plan to do with this with it this month."
  • Lower the cost of capital - consistent cashflow means lower risk. If you can reduce your risk, the cost of capital comes much cheaper because the interest you need to pay is not as high since it's secured that you're going to get the cash come in in the future.
  • Become more resilient - there will always be disruptions in the world, though some admittedly are bigger than others, but if your business has consistent cashflow and doesn't have to catch up each month or quarter, it becomes much easier to weather through storms.

Cashflow doesn't have to be difficult

If your business has been struggling with cashflow consistency or would like to understand more about what’s on the horizon, you can discuss this with our team.

Our expert team members can help you find solutions to business problems such as cashflow, customers, and forecasting, as well as improve your business's financial practices.

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