The upside of the downturn

When the going gets tough, as the old saying goes, the tough get going. As so it will be during 2009. Some businesses will inevitably, unfortunately, fall by the wayside, whether through bad luck or bad management. However, those able and willing to tough it out will probably find themselves with a larger slice of market share just by surviving. These are the reasons why: 

• Some businesses will have to be sold, either because of financial pressure, or simply because of ordinary events such as recruitment or ill health. Unfortunately, they are unlikely to achieve the price they would have in recent years. But that is good for acquirers. For those that are cashed up with strong balance sheets, there will be great opportunities to strengthen the market position and achieve vertical or horizontal integration.

• We haven’t seen interest rates this low since the Beatles came to Australia in 1964. So not only will there be acquisition opportunities, it will be relatively cheap to fund them (even allowing the 3 per cent margin the bank is likely to add). And despite the downturn, bankers are still saying they are open for business.

• While big businesses are shedding staff, there is a great opportunity for smaller businesses to finally recruit the skilled people they have not been able to attract during the skills shortage. This is the time for small businesses to assemble the team that can develop and implement a long-term strategic plan by which the business can achieve its full potential.

• The Australian dollar is low, allowing our businesses to be more globally competitive.

• The federal government has announced a 30 per cent tax bonus investment allowance for new depreciable assets contracted before June 30, 2009, and installed by June, 30, 2010 (with a 10 per cent allowance for assets contracted from July 1 to December 31, 2009 and installed by December 31, 2010). This additional tax deduction effectively means that the government is paying 9 per cent of the purchase price (or more, if the business profits are taxed at a rate higher than the company tax rate). The tax bonus provides a catalyst for businesses to buy capital equipment to order to be more productive, efficient and internationally competitive. Lower interest rates make these acquisitions even more accessible. (Of course, the tax bonus’ attractiveness depends on the business being profitable so the tax saving has an immediate value). 

• Commercial and industrial property is becoming more readily available and cheaper, even in areas that have had little vacant space in the last few years. Landlords may even consider offering incentives in exchange for a reasonable lease commitment. This could well be the time to find the location and the space the business needs for growth, market presence and logistical efficiencies or just simply to present a more impressive face to customers and staff.

• Other business services are also becoming more readily available and more flexible in price, such as marketing and advertising, tradesmen and consultants of all varieties. The skills the business needs to develop and implement that strategic plan could be more accessible than they have been for years.

So, for businesses that are financially sound and well-managed, this could be a highly rewarding period. When the downturn finally ends, they could find themselves with better staff, better equipment and better premises. They may have greater market share through acquisitions or simply through industry rationalisation and they may have found new overseas markets through a lower exchange rate and new skills and efficiencies. And they may have funded their growth, efficiencies and equipment with the cheapest funding we have seen for decades. Alternatively, they could be frozen by fear and indecision and just sit and watch as the opportunities go by. They may survive the global economic downturn but be ill-prepared for the next economic upswing. To make the most of the opportunities it will take courage, conviction, a readiness to work hard and sound financial and business advice. If people are pro-active now, they could just make the difference between whether their SME comes through the economic downturn as a casualty, a bare survivor, or a great success. 

Author Sue Prestney is the spokesperson on small- to medium-sized business issues for the Institute of Chartered Accountants in Australia.