Despite the highest inflation rates seen in decades, it seems businesses remain optimistic in Australia. A recent report has revealed over 80 per cent of businesses have a positive outlook for the Australian economy over the next 12 months.
According to Grant Thornton International’s latest International Business Report, local businesses are turning their attention inward to adapt to the new business setting.
Around a quarter of businesses are focusing on product differentiation to protect against rapidly rising inflation while 31 per cent are focusing on internal efficiencies.
“The results of Grant Thornton’s IBR research shows that Australian businesses who are innovative, improve internal efficiencies, and look for opportunities to diversify their offering will weather this economic downturn,” said Michael Pittendrigh, National Managing Partner – Consulting and Private Business Tax & Advisory at Grant Thornton.
Infrastructure and energy costs rank first among main contributors to business stress, as per the data. Australian businesses estimate increases of 19 per cent to energy / utility and transport costs in the last year.
Other issues on the forefront include finding and retaining staff. Almost half (46 per cent) of businesses have reported labour costs as a crucial concern.
Globally, raw materials costs have increased by more than 20 per cent while bank and interest costs have surged 16 per cent.
“As the Australian economy suffers another blow from rising inflation and subsequent hikes in interest rates, businesses and consumers are both feeling uncertain leading to some tightening of the belt and looking for ways to reduce spending,” noted Mr Pittendrigh.
How can businesses protect themselves in inflationary times?
In response to growing inflation, increased operational costs, and associated issues, there are a few measures that businesses can implement:
- Evaluate measures to limit external costs. Can you buy materials in bulk? Can you renegotiate terms with suppliers?
- Consider outsourcing activities to combat labour shortages
- Look into pricing strategies to be in line with cost increases. Is there a way to increase prices without losing competitiveness? Apart from putting prices in line with rising costs, are you able to increase prices in line with customers’ willingness to pay?
- Identify the different ways inflationary pressure can affect your business
- Evaluate ways to improve capital structure. Are you in a position to source additional capital if needed?
- Identify and implement ways to improve internal efficiency and/or reduce waste
“This isn’t a list of everything companies could do, but it is the essential starter actions with maximum impact,” said Mike Ward, global head of advisory at Grant Thornton International Ltd.
“The steps will help businesses get through this difficult inflationary period, and make them more resilient to any economic slowdowns, which is a real risk in the aftermath of inflation.”
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