The Reserve Bank has increased interest rates in response to the growing pace of inflation. Here, GiffardSim principal Rob Giffard explains how small businesses can be at risk of going under, if they fail to look for ways of reducing their costs or fail to increase product prices in the face of inflation.

Small local businesses could be in danger of going broke if they don’t keep their eye on inflation, cautioned GiffardSim Accountants principal Rob Giffard in Nowra. The Reserve Bank increased interest rates over the last year to the highest levels since July 1996, in response to the growing pace of inflation. 

“Big businesses are generally good at managing inflation; they often have accounting departments and relevant systems in place. Small businesses, however, such as food manufacturers and retailers, can find it a struggle,” Mr Giffard said. Small business owners often find the cost of wholesale goods increases as inflation goes up, but they continue selling products at the same price. 

“We are starting to see small businesses slowly going broke because of inflation, they think they can’t afford to sell goods to the customer at increased prices or they don’t shop around to see how they can reduce their costs,” Mr Giffard said. He suggested small business owners look at their cost and sale prices to make sure they are maintaining their profit margin. “I’m starting to see signs that some small businesses’ figures are headed in the wrong direction and the earlier it’s addressed – the better.” 

Mr Giffard said it is an issue especially related to country retailers. “They often personally know a lot of people, and their business has a relationship focus so they don’t want to disappoint customers by putting up their prices,” he said. To stay viable though, Mr Giffard said, small businesses needed to increase their sale prices in accordance with inflation or look at more effective ways of bringing costs down.

If you are a small or medium business owner and you would like to see whether you can effectively maintain or improve your profit margin in the face of increasing inflation, please contact one of our experienced and highly trained accountants at South Coast firm GiffardSim Accountants on 4421 4355.