Interest rates will rise to combat inflation. The RBA cash rate is at 0.35% - still a historically low figure – but inflation is at 5.1%. The rates will rise to correct the inflation to within their target of 2-3%.
If you are a business owner, the best option for sustained wealth creation can be to invest in your primary asset: your business.
Growth is possible – and here are five reasons to invest in business growth for 2022.
Loans are cheap
Let’s face it – a 0.1%p.a. cash rate wasn’t going to be forever, and neither will 0.35%p.a. We’ve hinted that even ASX listed businesses should take out loans sooner rather than later. Loan interest rates will only go up from here. As a business, you should compare different business loans and weigh up which kind of loan is best suited for your growth plan. Is unsecured funding needed to shore up cash flow? (more on that later) Are you expanding your operations through asset purchases? Though land and property may be overvalued in some areas, your business will be better off on the back end through using cheaper capital.
It out manoeuvres the competition
With many businesses thinking that cutting costs are the only way to save themselves during times of economic upheaval – but even if revenue falls, a business cannot cut their way to prosperity.
Investing in marketing, inventory, staff, and other performing assets can pick up market share from competitors that may be more conservative in their approach. A bold move can often pay off, especially if it’s well executed and planned accordingly.
It maintains cash flow
According to ASIC, about 20% of businesses that went insolvent did so due to poor cash flow management or high cash use (2018-2019.) Cash flow is the blood of any business and good cash flow means a business can make the most of upcoming opportunities by taking on more inventory, hiring or leasing warehouse or factory space, hiring plant, and so on.
You can diversify company markets
Funding your growth means you can also diversify your offering by entering new markets. If sales are down in your home region, you may adopt a “blue ocean” strategy where competition is low and sales potential are high, capturing and creating new demand.
Establish vertical integration
One way to get a competitive advantage and set your business up for growth is to vertically integrate portions of your business so you aren’t reliant on external contractors or third-party suppliers. Vertical integration can add value at each step of the product and service chain – whereas other companies may have to raise prices in tandem with their suppliers or contractors, a vertically integrated company can keep prices competitive as more and more of the development of products or services are produced in house.
