Prepare for currency challenges
Currency fluctuations often accompany a downturn. They are a double-edged sword for business owners. If you’re an exporter, a drop in the Aussie dollar will work in your favour by making your prices more competitive offshore. Conversely, if you’re selling imported goods, you’ll be paying more for them. So, you’ll either need to slash your profit margin or convince nervous consumers to start paying more for what you sell.
It’s possible to minimise the dangers of currency fluctuations by hedging. This essentially locks in a fixed exchange rate regardless of what the rate is at the time of the transaction. There are a variety of ways to go about this but in most circumstances it is simplest to just ask your business banker if they can arrange this for you given most banks offer the service.
Insure against bad luck
If you supply goods or services on credit, you should consider taking out Trade Credit Insurance. This can provide cover in cases where a customer goes broke still owing you money. That’s something that can happen even in the best of times and something you should certainly be prepared for if the economy goes south. We can advise you on the right trade credit coverage for your needs.
A lesson in downturn proofing
Brisbane-based Daniel Brady soon learnt about weathering downturns after launching Heavenly Hammocks in 2014. It turned out consumers buy plenty of hammocks in the warmer months but not during winter, when Brady estimated his profits to be “roughly zero”. Brady’s solution? Shift to cheaper storage facilities and expand his product range by introducing related but less seasonal products, such as swings.
“Given our low fixed expenses, we would remain profitable even with a reduction in sales.”
“Overall, the business feels quite safe from a downturn,” he says. “Given our low fixed expenses, we would remain profitable even with a reduction in sales.”
As Brady’s story demonstrates, the things you need to do to downturn-proof your business are pretty much the same things you need to do to keep it viable in in any economic conditions. Keep a close eye on your financial data, don’t prevaricate over tough decisions, control costs and take out the appropriate insurance and your business should enjoy healthy profits in the booms and be sufficiently well run to make it through the busts.
24 August 2017