‘Businesses need to prepare for interest rate rise’, warns this recent ICAEW press release. And there’s a particular reason why you might be unprepared – especially if you’re a new business.
Have you actually ever known any different?
‘As speculation grows that the Bank of England Policy Committee (MPC) will increase interest rates at its next meeting in November,’ reads the press release, ‘ICAEW is advising businesses to be prepared following over 8 years of historically low rates of 0.5% and, since the Brexit vote, 0.25%.’
This may have lulled you into a false sense of security? Especially if yours is a small business that’s never known any different.
The press release quotes Matthew Rideout, ICAEW Director of Business.
‘Many businesses have only known low rates’, he warns, ‘and could be sleepwalking into problems when they do start to increase.’
Is this you?
‘Circumstances can change rapidly and businesses should be prepared by undertaking a number of simple steps.’
Avoid complacency, is his advice.
And here are those ‘simple steps’:
1. Manage your cash flow – so, minimise your reliance on finance ‘to supplement day to day cash management’. This will ‘minimise the impact of any business rate increase’, suggests the press release.
2. ‘Do forecasts of future scenarios and plan for these.’ So, work out what impact on profit and cashflow a 1% increase in rates would have. Look ahead. Don’t bury your head in the sand.
3. How robust are your customers? Do they have a good credit rating – especially larger ones whose payments you rely on? It’s simple. ‘Interest rate rises increase the risk of business failure’.
4. ‘Many businesses have an accumulated cash surplus’ – is this you? So, says the release, ‘there may be opportunities to invest to improve competitiveness when other companies need help’.
5. How are your competitors faring? Don’t forget: it’s not only you who’ll be facing this challenge. Can you gauge how your competitors are doing? Are there any fresh opportunities?
There’s a nice summary, in Matthew Rideout’s words, at the end of the press release.
‘Businesses are probably already paying upwards of 4% above the Bank of England base. A series of interest rate rises may significantly impact low margin businesses, increasing overall business risk. This puts the onus on businesses to manage their cash flow tightly, creating contingency in their financing facilities, and credit checking customers to minimise financial exposure.’
Don’t be one of the small businesses that fails to ride the crest of these interest rate rises.