Knock-on effects

Smart companies that are cutting back on their Christmas parties, substituting an offer of continued employment for the annual bonus and finalising their New Year resolutions need to take a close look at their risk management projections for 2010.

While customers say they are willing to spend on some big-ticket items, Gary Morgan says that consumer confidence is falling again and there has only been a marginal improvement in consumer sentiment around the world.

There is every reason to be very cautions in setting out strategic plans for the coming year, despite Glenn Stevens view that we need a steady stream of rate rises in the New Year.

There is a real need for small business to plan ahead for the next round of financial crises in the US and Europe that is going to lead to a further credit crunch as the RBA returns Australia to normal, ie. raises interest rates in 2010 to a little under 5%.

Banks around the world have shown that they have used the stimulus and sovereign guarantees to continue to pay out extraordinary bonus packages and cut back lending to small and medium enterprises.

The Government will once again stand back and permit market forces to decimate the small investors who are supposed to be the source of national economic recovery. Just think of the plight of more than 60,000 grower-investors who are faced with liquidity crises after investing almost $4 billion into around 100 managed schemes including Great Southern and Timbercorps.

Think of the small firms that have been dramatically hit by changes in the circumstances of trade and bank creditors who are facing real difficulties getting bridging finance to survive the GFC and the basic credit to remain open next year.

See: https://www.crikey.com.au/2009/07/02/the-list-of-timbercorps-victims-continues-to-grow/

HLB Mann Judd partner Barry Taylor says that: “It’s going to be a bumpy recovery: we haven’t seen the peak”. Businesses that get into trouble are thinly capitalised or highly geared and bank facilities are becoming tighter and tighter.

Peter Marsden RSM Bird Cameron’s turnaround and insolvency says that banks aren’t lending to troubled businesses and the ATO is withdrawing support for SMEs that need more time to keep away the insolvency practitioners. The number of companies going bust in the major states increased significantly last month.

Is it any wonder that the Senate Economics References Committee is to inquire and report by Tuesday August 31, 2010 on the role of liquidators and administrators, their fees and their practices, and the involvement and activities of the Australian small business owners will have the chance to raise significant questions about the capacity of liquidators and administrators to plunder the remnants of financial viability of firms that they assist in the best Schumpeter tradition of destructive cannibalisation and profit generation.

See: https://www.aph.gov.au/Senate/pubs/daily/2009/241109.pdf

Recent collapses have also shown the need for more effective regulatory enforcement. As Senator Parry, Deputy Chairs of the Parliamentary Joint Committee on Corporations and Financial Services told the Senate before its recent reconstruction into a house of instability: “The collapses of Storm, Opes Prime, and others, have certainly had a devastating effect on the people who invested in them”.

Payments from product providers to financial advisers – such as commissions and volume bonuses – create entrenched conflicts that are very difficult to manage and payouts to fiscal sharks acting as receivers and liquidators in their own fiduciary interests create a vast army of disenfranchised enterprises that feel they are not so smart after the event. This committee received nearly 400 submissions, more than 200 of which were from people affected by the collapse of Storm Financial.

All this means that it would be folly to think that good Christmas sales are a sign of recovery, and it would be prudent to remember that consumers are likely to be in a sombre mood, as the Opposition raids the stimulus funds that have not yet been spent on infrastructure, interest rates continue to rise to “more normal rates” and we get the election fights that suck up goodwill in the community.

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Dr Colin Benjamin
Entrepreneurship and Strategic Thinking Consultant
Marshall Place Associates offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099