Businesses should reduce operating expenses in face of rising costs

Businesses will struggle to survive if they don’t find innovative ways to navigate supply chain issues and manage the rising costs of doing business. The next 12 – 24 months is going to be challenging for businesses to maintain operations unless they are able to manage supply chain issues and the rising cost of doing business effectively. Being an island nation, Aussie businesses only have two options for bringing goods into the country – by air and by sea.

Both of these channels are under severe stress at the moment making it difficult for businesses to access the goods they need to support their clients. Not only are shipping costs going up tenfold, the ability to buy space is challenging. COVID is continuing to impact factories around the world, especially Asia, which is bringing many of them to their knees.

Add to this the soaring costs of fuel, power and other operating expenses, as well as rising inflation; it is critical that businesses act swiftly to minimise the impact. All of the fore mentioned factors make it more difficult and extremely expensive for businesses to operate.

How can businesses navigate the prevalent difficulties?

Unfortunately, this cash flow pressure comes at a time when banks continue to tighten lending standards for businesses so getting access to help is becoming harder for many businesses. Businesses need to look at alternative ways to get through the next 24 months.

Seek out alternative funding

Businesses need to look at alternative ways to fund operations. Traditional bank loans are not options as they don’t have the steady trading activities to support the loans. Trade Financing is built to cover the cash flow gap between paying suppliers and receiving payment from clients and we have seen a huge increase in demand for this product in recent months.

In the case of Earlypay, our Trade Financing works together with Invoice Financing. We pay suppliers directly so businesses can access stock and the Trade Financing is repaid by the Invoice Financing facility when that stock is on-sold to customers. Invoice Financing can also be used by itself to boost working capital by unlocking cash that is tied up in unpaid invoices.

Many business owners find this to be a simple way to boost cash flow, and because the invoices themselves are used as collateral, there is no need to risk their family home.

Invoice financiers can also take care of managing debtors and collections so the business can focus on what they’re good at. For Aussie businesses that use Xero or MYOB, Invoice and Trade Finance solutions can be integrated with their accounting software to access the invoices directly so it’s a really simple way for busy business owners to access funding.

Find local product providers and diversify suppliers

It is often said that economic turmoil accelerates new and different ways of doing things and in the case of COVID, the pandemic should be no different. Businesses that are flexible and innovative during times like this will come out stronger. If businesses can find ways to turn to locally produced goods this is going to ease the strain of accessing products from overseas.

Supporting local manufacturers is also a welcome boost for the Australian economy as manufacturing has been a shrinking sector in recent decades due to our reliance on China and other Asian countries for many goods. Review suppliers, substitute in local content where possible and seek backup suppliers across different countries. This will give businesses more flexibility and certainty in accessing stock, holding them in good stead for future.

Review distribution and storage arrangements

The cost of shipping, warehousing, logistics and customer deliveries is rising at a fast rate. Now is the time to review these arrangements, particularly those that involve third-party logistics. Explore ways to share or reduce the cost with other businesses that may have capacity or the ability to partner with you. Discuss options with your service providers. 

They would rather find a solution than lose your business. Find innovative ways to spread the cost or even encourage clients to collect their parcels/products rather than deliver or ship. If you offer click-and-collect services, incentivise clients to choose this option. Businesses have to find ways to get products to customers in a timely manner while also managing costs.

Sustainable energy sources

The price of power is crippling and set to get worse. Now is the ideal time to review energy consumption and look to more sustainable solutions such as solar or more energy-efficient technology, machinery and equipment, hybrid and electric vehicles. Take advantage of the gov’t’s budget initiatives which include tax incentives to support investment in new tech. 

In addition, the government’s SME Recovery Loan Scheme (SRL) which is designed to support economic recovery and provide continued assistance to SMEs dealing with the economic impacts of COVID, is also available. The SRL scheme provides concessional loan incentives to assist businesses to invest in new assets and improve cash flow.

The scheme closes on 30 June 2022 so businesses are encouraged to apply before the opportunity to access the Federal Government’s generous incentives end.

Partner with a good freight forwarder

Freight forwarders are now worth their weight in gold. Find a good forwarder that is able to help you source the best way to get your products on a reliable basis at a reasonable cost. Look for a forwarder with extensive experience, but also the innovative ‘real time’ technology tools to act quickly. Speed and customer service are paramount in the current environment.

COVID has created an unusual set of trading circumstances and that it will be the businesses that adapt to current operating challenges quickly that succeed over the next 24 months. 

Daniel Riley is a finance expert and the Chief Executive Officer of Earlypay.