The historic bushfires raging across New South Wales, Victoria, South Australia, and Queensland have so far destroyed thousands of homes and businesses, scorching an area the size of South Korea. While major population centres haven’t been seriously threatened by the flames, economic impacts are expected to be significant.

110372293 0ba632a5 1150 422a 98ea 473d024e7a3b 300x203 - Bushfires have far-reaching consequences for businesses

Businesses that were directly struck by the fires naturally suffered the most immediate impacts, but the economy as a whole has far more to fear from the disaster’s indirect effects. Smoke, haze, and growing uncertainty among consumers are already affecting businesses all over the country. Worse, the fire season is far from over. Consumers and businesses will have to continue to find ways to cope as the devastation continues in the coming months. To protect their interests, businesses in particular need to consider how they might be affected.

Tourism hot spots are suffering

Towns and cities all over the country rely on tourism for revenue during the summer months. Smoke and haze creates unpleasant and unhealthy conditions, and raises concerns about safety among potential visitors, leading many to cancel plans. As a result, a broad range of businesses who aren’t expected to come within 100 km of a fire, from retailers to restaurants, to surfing instructors are finding themselves idle during what is supposed to be peak season.

With widespread uncontained fires raging all over the country, and the driest part of the year still to come, affected businesses will likely continue to suffer for months. As a result, many likely won’t be able to operate normally until autumn.

Fires are affecting consumer confidence

Australian discretionary spending has been fragile for some time, and a large-scale disaster like this will cut consumer demand further. Specifically, it will encourage more conservative spending habits from frightened Australians, while also reducing the amount of money flowing into the country via tourism.

Low consumer confidence presents a serious risk for the country as a whole, because falling consumption can create a negative feedback loop, resulting in a recession. This occurs when reduced consumption forces businesses to downsize production. That, in turn, results in job losses, cutting off the incomes of some consumers, leading to even lower consumer spending.

Relief funds won’t stimulate the economy

The government has committed $2 billion in relief funds to deal with the crisis. While these funds are essential in helping businesses and affected individuals to recover, this money won’t stimulate growth in the economy. After all, those funds would simply have been spent in another way if the crisis had not occurred. Instead, they’ll serve to prevent longer term damage to the economy. In the near term, Australia will be forced to simply absorb the impact that the fires have already had on the economy. However, affected businesses don’t have to just wait and see how things turn out for them.

How businesses can protect their interests

Many of the companies being affected won’t immediately be forced out of business. Instead, they’ll suffer decreased revenues during the summer months, potentially forcing them into bankruptcy during the off-season. Those who find a way to adapt to the situation can not only avoid financial ruin, they may well find themselves with fewer competitors and opportunities to grow when the dust has settled.

Cut costs

The most natural response to falling revenues is to cut costs. In order to minimise the financial burden that the company faces at the end of the crisis, it needs to remain as profitable as possible in the intervening time. That might mean downsizing, laying off workers, or cutting working hours in the near term. Those who can’t make a profit at this time, though, may need to turn to other means to keep their operations running.

Manage cash flow

More than anything, what businesses need to get through an interruption like this is time.

In a situation when incoming revenues are unusually sparse, businesses can use this time to come up with other solutions, including the funds it needs to recover.

Government support

The Australian government initially announced a $100m fund to support up to 19,000 farmers, graziers and primary producers affected by the bushfires. This comprises grants of up $75,000 each, and is designed to replace sheds, fences and other farming equipment damaged by the fires. Since then a new $50m fund has been announced, which includes additional food vouchers, support services and financia­l counselling.

Funds will be distributed by state governments, to get into the hands of affected parties as soon as possible. In addition, off-farm income up to $100,000 per person would be exempted so that affected farmers are able to get access to the grants.

While businesses face a trying time, there is support to help improve their circumstances, and to help them make it through.

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