Are You Prepared for a Market Crash?
It’s been 10 years since the 2007/8 global financial crisis, something many consider the worst economic downturn since the Great Depression.
Many people, businesses and countries are still trying to recover, or have barely just recovered.
Then in March this year, Bill Gates said it was “a certainty” that we will face another GFC in the future.
How protected is your livelihood, your personal and business assets, this time around?
Before you start panicking and/or muttering under your breath ‘here we go again’, keep in mind that Gates believes it’s not all doom and gloom.
“Despite this prediction of bumps ahead I am quite optimistic about how innovation and capitalism will improve the situation for humans everywhere,” he concluded.
Similarly, in a 2017 speech titled “The Next Chapter”, Australia’s Reserve Bank governor Philip Lowe discussed our sibling nation’s economy.
Like Gates, Lowe is hopeful. “Overall I remain optimistic about how this next chapter might unfold,” the governor concluded, citing the presence of strong institutions, a skilled population, a deep wealth of mineral and agricultural resources, strong links to Asia, a flexible economy and a “competent, analytical, transparent and independent central bank”.
That’s good news for us, because a good-looking Australian economy alludes to a good looking New Zealand economy.
He highlighted four things to watch for, pending another crash:
- Developments in other major economies.
- The impact of climate change.
- Geopolitical tensions.
- The need to revive flagging productivity growth at home through more investments in human capital.
While you may not be able to completely protect your business from an economic downturn, understanding how it could affect you will help you develop a plan to minimise its impact and potentially identify new business opportunities.
Assessing your business performance is a good place to start; identifying areas that need to be improved before they become major issues, giving you the opportunity to consider how to respond.
“Planning, reviewing and monitoring your business should give you the information you need to make changes to help you stay financially viable. This should make it easier for your business to respond to, and recover from, an economic downturn,” advises the Queensland Government.
How to protect yourself
1. Review your business plan
Understand what is happening with your business: its identity, its position in the market, its relationship with its target audience, its internal and external practices etc.
2. Conduct SWOT analysis
Identify and build on strengths (S), identify and minimise weaknesses (W), identify and seize opportunities (O), and identify and counteract threats (T).
3. Conduct financial analysis
Best practice financial management involves “planning and forecasting financials based on the strategic goals of your business and regularly reviewing actual performance against your forecasts. Key factors to consider include: trends in cash flow (positive or negative), revenue and expenses; current sales of various products or services; level and turnover of stock; review of debt and creditor days; and how your business services debt”.
This process will allow you to:
- Identify risks that could impact business performance
- Analyse risks to assess their impacts
- Evaluate risks to prioritise their management
- Treat risks to minimise their impact
- Develop and review your risk management plan.
By Lydia Truesdale