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Soaring energy prices, the prospect of interest rate rises and the spectre of inflation should be front of mind for every business, says policy expert.
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Why accountants must factor in $3 fuel
10 March 2022
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Accountants will play a key role in helping businesses plan for 1970s-style inflation and sky-high petrol prices, says Gavan Ord of CPA Australia.
The senior manager of business policy at the professional body believes the UK and US – where costs are rising at 5-8 per cent – show inflation is here to stay in Australia and the only way for fuel is up.
“Inflation is not transitory and it almost feels like the oil shocks of the 1970s returning again,” Mr Ord said.
Australia’s geography meant many fuel consumers would have little option but to accept higher prices, feeding an inflation cycle that would increase everything from rents to wages.
He said it was crucial that accountants, both in business and public practice, began modelling situations where petrol went as high as $3.00 from its current level of around $1.75.
“The primary role of accountants at this time is to do some scenario planning. What would, for example, $3-a-litre look like?” he said.
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“Then start to see how that would impact the bottom line of a business. How could they pass on the pricing? How could they reduce their demand for fuel?
“That’s the main role for accountants working in business at this point.”
When it came to small-business clients, Mr Ord said they could often baulk at passing on cost increases but he had been advising public practitioners to discuss the risks and how the clients could react.
“Say to them, ‘Can we do some planning around how to respond to a much higher fuel price?’ Encourage them to pass on the cost increases – consumers understand that input costs are going up,” Mr Ord said.
Inflation and fuel prices made a difficult environment even more problematic, he said, because in the wake of the pandemic customer behaviour had become more unpredictable – for example, people no longer went into the office every day.
Accountants would need to tailor their messaging to the various industries they service, and factor in issues such as a decline in discretionary spending. What they said to a local café would be different to what they told a transportation company or tradie.
But most of all, they should simply urge clients to come forward for help.
“Encourage businesses to seek advice. We saw during the pandemic that when some businesses get into trouble they become less likely to seek advice,” Mr Ord said.
“Accountants should encourage them to come in early. Don’t treat advice as an optional extra.
“When businesses stop seeking advice, they perform worse.”
Governments had a role in oiling in the wheels here, with CPA Australia’s budget submission recommending that they “roll out support programs that leverage the existing relationships small business has with professional advisers. This is likely to reach far greater numbers of small businesses in need of advice than if governments were to use their own advisory channels.”
He said accountants were already more realistic than many of the companies he spoke to.
“When we talk to accountants, they don’t challenge $3 a litre. But when I talk to some businesses, they say, ‘Oh it’s never going to get to $3,” Mr Ord said.
“I told them, it may not, but you need to start to think about what that might mean for your business whether you believe it or not.”
But even accountants should realise that despite two years of continuous challenges, things could get worse.
“They’re ahead of the game compared to some people, but they need to take a more conservative view. The worse case scenario now is a lot worse than they have contemplated,” Mr Ord said.
Small- to medium-sized accountants would have to adjust their own business models, Mr Ord said, and adopt up-to-the-minute technology.
“For those embracing technology and moving into the advice space, there are loads of opportunities,” Mr Ord said.
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