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Smaller firms with a greater reliance on funding will be impacted the most by rising rates and the shifting economic environment.
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SMEs must pass on costs to survive: HLB Mann Judd
24 March 2023
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SMEs must pass on the costs of operating in an increasingly volatile market or overcome steep hurdles when it comes to funding, says a risk advisory specialist.
HLB Mann Judd Sydney’s restructuring and risk advisory partner Todd Gammel said small-to-medium firms would be facing at least another six months of pressure with the shifting economic environment.
“Not passing costs on is a real issue because that is impacting margin which makes you unprofitable and if you have higher debt levels or you have a funding structure where there is a limited runway that can cause a problem,” said Mr Gammel.
“So that’s where you’re going to see businesses captured in an unfortunate time.”
He said these SME firms were seemingly caught out by the 13 consecutive years of record-low interest rates followed by the sharp increases.
“The current economic climate is making it difficult for some businesses to access capital and debt to fund operations,” he said.
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“While supply chain issues have eased, relative to 12–18 months ago, it continues to have a knock-on effect for some.”
“The uncertainty around rates and the steep manner in which they have risen means business owners need to manage funding risk more closely.”
Despite stating the Silicon Valley Bank collapse should not be of concern locally and was a “social media-driven issue”, Mr Gammel said businesses should learn from its downfall.
“The Silicon Valley Bank collapse has highlighted the need for management to understand and hedge risk in a changing environment with greater scrutiny,” he said.
“Taking a small loss on a poor investment or strategy is a learning experience, losing the business because of an unwillingness to close the position or accept the loss earlier places concern around adherence with personal obligations.”
“So there is some contagion (regarding the SVB collapse) particularly in our early stage start-ups but it’s not a major issue, as long as we don’t start writing everything on Twitter in caps it can be managed.”
Despite the concerning time for businesses with low capital and funding struggles Mr Gammel said those in stronger positions should look to acquire firms now before it was too late.
“Rising rates have, to a degree, put a handbrake on some businesses looking for greater scale through acquisition but given there are some sectors still struggling, particularly construction and some retail sectors, the opportunity to acquire hasn’t altogether passed,” he said.
“Not only does an acquisition add scale, increase hard to find workforce, they can improve the margin and market position of both businesses by operating as a single entity.”
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