p: 617 3368 4010 e: reception@absbrisbane.com a: Level 1 Unit 3 25 Railway Terrace, Milton, Qld Australia 4064

We sell businesses That's what we do

Business Search

Accommodation/Tourism (15)

Automotive (48)

Beauty/Health (91)

Education/Training (11)

Food/Hospitality (892)

Franchise (48)

Home/Garden (33)

Import/Export/Whole (13)

Industrial/Manufacturing (118)

Leisure/Entertainment (67)

Professional (44)

Retail (213)

Rural (2)

Services (125)

Transport/Distribution (7)

Business/Property (16)

Left to Our Own Devices

Published : 29 May 2018 Author : Harry

There was a saying we used to hear quite often that the US was ahead of Australia in the sense that whatever would happen to us would happen to the US first. This has been lost on the long road to recovery from the Global Financial Crisis which will celebrate its 10-year anniversary from the date that Lehman Brothers collapsed in 2008. It has been a long slow but stable path of low inflation and increasing employment.

This has come to an end. The US is now at full employment and rightly or wrongly US interest rates are starting to creep up.

The possibility that this increase in rates may be premature since there are very few signs of inflation and the costs of raising them up to early is far greater than raising them too slow is immaterial. The market interest rate market is mobilising and it is driving rates up.

There is now a disconnect between the Australian economy which is still not at full employment and has a significant degree of underemployment, and the US economy. The consequences of this is that the Australian economy will have to start weathering the increases in interest rates that will spill over to us because of US economies capacity constraints. The reason for this is simply that Australia sources around 40% of its loanable funds from the US market and will therefore have to compete in a time of rising costs for those funds.

How is our great but highly leveraged country going to cope?

Don’t hold your breath for the wisdom of our parliament. It has been a dysfunctional mess for even longer than this period of recovery from the global financial crisis. Further to that our strongest economic agency, the Reserve Bank, has no ammunition left. It is caught between the rock of encouraging further private sector debt via the property market if it cuts domestic rates to insulate us from the international increases and the hard place in that the rate that it controls is already at 1.5%. It would be foolish to think it can further cut this rate to stimulate activity as this would impair the functioning of our finance markets and soon enough on our economy. At this point, positive interest rates that are not zero act as a lubricant to our economy as well as a lever to stimulate it. To use a pithy analogy, lowering rates to close to zero will make this car blow its motor.

Luckily, we have two other levers up our sleeve to save us. One of them is out of our hands and kicks in of its own volition and that is the exchange rate. Traditionally this has come to our rescue via depreciation and is likely to do so again. The problem is that we can’t control it and it has the finesse of a sledgehammer.

The other lever is the ANZAC spirit. When no one else can help us, we help ourselves. Not collectively but as individuals. When the pressure mounts is also when we are at our best. In times of war we have taken up arms. In times of hardship we are entrepreneurial.

A nations prosperity rises out of its business activity, not its government activity. The demand for well-run businesses will grow and those who are prepared will prosper and help support the rest of the country through employment and the payment of taxes.

To take advantage of this coming cycle if you are a buyer is to have your money ready. Banks may start to lend more for business rather than residential or domestic purposes but don’t hold your breath. They don’t even remember how to do this.

As for those who want to sell their business the trick is to make it attractive and to lower the risk within the business to a prospective buyer. The simplest way to do this is to make the business transparent. It’s moving parts should be visible and verifiable. This is what reduces the risk and increases the multiple attached to the value of the income a business produces.

If you want help with figuring out what your business is worth, then seek advice. This could come from your accountant who has looked at the numbers regarding your business. Alternatively, it could also come from your business broker whose job it is to turn your business into cash.

Our firm has registered business valuers who are skilled at appraising a market price for your business and can then use this information to find a buyer.

If you want to speak to someone who operates at the coal face, then call me on 0434 344 282.