Six months into 2009 and it’s been announced by those in the know that apparently our ‘annus horribilis’ economically speaking, is over. Australia has dodged the recession…
Technically.
Well the champagne is chilled and the fireworks are on standby. And I’m sure that editors and journalists across Australia are whooping for joy as they look forward to reporting on something, anything other than stories of economic doom and gloom. But as the banks raise interest rates, the housing market begins to warm up again and consumers continue to shop with more caution and less credit, I’m wondering if it’s too early to pop the champagne corks?
With the whole of the Australia, I wait with mildly optimistic anticipation to count in the new financial year, but deep inside I know that we are in for another 6 to 9 months of cold economic weather. As we reflect on the past 12-18 months with a mixture of denial, despair and relief, I cannot ignore the persistent ringing in my ears which sounds something like ‘I told you so.’ What I am saying is this: not all the doom and gloom came to us from outside. A good portion of it has been our own doing.
Recent data from credit reporting agency Dun & Bradstreet, revealed a 20 percent year-on-year increase in the number of firms entering insolvency and a 28 percent increase on 2006 figures (Feb 2009). However for some of the 6,000 businesses which have gone under in the past year labelled as ‘collateral damage’ in the wake of the global economic crisis, I suspect that their problems long predated the economic downturn.
Without doubt, there are certainly many businesses who have been directly affected by the downturn. However, there are equally as many businesses blaming their poor performance and loss of profits on the financial crisis rather than any poorly researched and executed business decisions.
Let me give you some examples from my main area of interest – retail systems. Every chain retailer needs a computer system to run their business. And believe it or not, you can implement a good, retail-specific package within six months and expect to get the payback in less than a year. One would expect that every retailer in Australia would want such a system, but … they don’t. Many retailers still spend exorbitant amounts of money on ‘big-name’, generic systems, paying 20 times more than they need to. The worst part is that despite the hefty price tag, these sophisticated enterprise management systems do not deliver even remotely acceptable results.
What about this financial ‘accident’ that happened a few years ago – a chain of 150 hardware stores spent over $110 million on their systems. Had they chosen a different system, the same outcome could have been achieved for about $10 million. The result? Another permanently handicapped business with concrete poured into the bottom line. The fact that such businesses had ‘spare’ money at the time is no excuse. Investors, business partners and ex-employees surely would have preferred it if the cash had stayed in the business. It would have come very handy today.
Overindulgence always has a price, whether it’s hangover, a stomach ache, an unserviceable debt or an ailing, failing business. So good friends, before you go into the next financial year with a glass full of bubbles and a smile that says you made it through this year relatively unscathed, I’ll give you one big tip.
Make sure you are always, always able to financially justify all your business decisions and spending, no matter what kind of economic climate you may be operating in.
That’s right, this financial new year don’t be tempted to make irrational, reactive and expensive decisions; no rash resolutions, no sudden splurges, no borrowing binges. Despite sightings of an economic recovery, the need to be prudent remains. Even when economies stop shrinking, they remain weak. The sun won’t start shining until early next year.
– Andrew Gorecki is the Managing Director of Retail Directions, a Melbourne-based retail technology company specialising in Merchandise Management and POS software, and strategic consulting.
