Manufacturing News

A stop in spending signals troubled year ahead

THE serious cash flow pressures currently being exerted on Australian industry will have major implications for business spending and investment into 2009, according to a new national business survey.

The Australian Industry Group / American Express Survey — Managing Cash Flow in Troubled Times survey found that only 12% of Australian businesses’ are prepared to take on above-average or significant financial risk to grow their company over the next six months.

Small, medium and large-scale enterprises cited cash flow difficulties, profit margin downgrades, and uncertainty over tax breaks as their key concerns.

Australian Industry Group (Ai Group) Chief Executive Heather Ridout said the clear message from the survey is that the global economic and financial crisis will have a significant impact on Australian businesses.

“The unfolding global financial meltdown is having a significant impact on business cash flows and is forcing businesses to quickly reassess the strategies they have adopted to manage their finances,” Ridout said.

“The only conclusion to draw is that these impacts will have become even more intense in recent weeks.

“Regardless of business size, managers have major concerns about the impact of the worsening economic conditions on cash inflows from sales. In turn, they are apprehensive about the effect of a slowing economy on their overall cash flow outlook and their ability to pay their bills on time. ”

According to Ridout, the key strategic responses by survey participants to the concerns over cash flow are very straightforward.

“They will focus on a more aggressive approach to pursuing accounts receivable; cutback on expenses; exert greater control over spending and delay expenditures where possible.

“While these strategies are sensible, and indeed may be essential for each individual business, they point very clearly to one of the ways the slowdown is likely to spread across the economy.

“With businesses tightening and delaying their own expenditures — both in response to and in anticipation of reduced receipts — an ongoing reduction in confidence and the expectation of a slowdown can quickly become self-fulfilling,” Ridout said.

American Express Vice President of Small Business Services, Rachel Felton, said the survey suggested that inflation may become less of an issue.

“More than 90% of businesses surveyed claim they have been unable to fully pass-on increased costs,” she said.

“In order to remain competitive in the current environment Australian businesses feel unable to increase their prices and still maintain their sales and cash flow. This is putting pressure on businesses’ ability to think creatively about their long-term competitive positions.

“What is apparent from the survey is there is a clear need for longer-term cash flow management strategies that allow more timely access to accounts receivable and the more efficient investment of available finance,” Felton said.

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