Despite an ongoing trade war, and other occasionally troubling indicators in the global economy, Australia and New Zealand have maintained growth in their economies in 2019. Today, though, businesses rely on the global economy to facilitate their growth—simply ignoring global economic developments is not an option. This is highlighted by the World Bank’s stark warning on 20 December 2019 that financial markets may face another global crisis. Businesses need to be aware of, and manage the risks that their national and global economy faces while pursuing their own success.
Businesses need growth solutions to help them manage economic insecurity on both a local and a global scale. The recent housing crisis in Australia, and the threat of a repeat performance in New Zealand, for example, are showing business owners that they need more flexibility when it comes to financing their operations. At the same time, businesses need to find innovative solutions to manage falling consumer spending, as retail spending in particular has slumped to its lowest level in 28 years.
That requires businesses to compete more fiercely, investing in the development of new and more innovative growth strategies. The same pressures that drive this kind of competition, though, are making investors and lenders more cautious. To get the funding they need, businesses need cleaner balance sheets, and more stable finances than they did when the global economy was roaring.
Global factors are undermining growth down under
The World Bank recently issued a warning regarding the rapid and massive growth of debt in the global economy, particularly in developing countries. As of the end of 2018, the IMF reports that global debt had reached $188 trillion USD, worth nearly 230 percent of global GDP. The World Bank’s report states that this ongoing trend could culminate in a major global financial crisis—especially if interest rates were to rise, or any kind of economic shock pushed creditors to action.
This news, emerging in the midst of ongoing trade tensions between the US and China, and rising debt in both economies, is enough to inspire caution among investors and businesses alike. While it has certainly slowed growth, though, Australia still achieved record-breaking commodity export figures in 2019. This highlights that growth is still achievable and worth pursuing, even when the road to success is, in some ways, more rocky than usual.
Investing in innovative growth
A lack of growth in consumer spending, exacerbated by slow wage growth in Australia, means that many businesses can’t rely on simple economic growth to provide the demand they need to expand. Instead, they need to develop specific strategies to capture customers from competitors, or to break into new markets to facilitate their growth. That means investing in research, innovative marketing strategies, and product development. This, however, often requires larger investments, and more complex growth strategies. Borrowing to finance those strategies can leave a business overextended if the economy takes a turn for the worse.
To avoid that, businesses need to be able to manage their cash flow to adjust to changing conditions. Specifically, they need to be able to access additional funds on short notice without jeopardising their future borrowing potential or worrying investors. That means adding off-balance sheet financing to your business’ toolbox.
Use off-balance sheet financing to protect cash flow and make quick investments
Off-balance sheet financing is an indispensable way to get access to cash quickly when it’s needed most. Supply chain finance, for example, allows businesses to defer payment for supplier purchases by up to 90 days. Instead of making payment right away, the business’ financial institution pays the supplier, and collects the funds from the business later. This allows the business to quickly free up working capital to boost production, or pursue another short term growth opportunity.
Similarly, invoice finance allows businesses to exchange an unpaid invoice for cash up front. The financial institution receiving the invoice will pay out most of the invoice’s value immediately, issuing the remainder when the customer pays the invoice. This gives the business an injection of cash right when they need it, without actually borrowing any money.
Off-balance sheet financing solutions like invoice finance and supply chain finance are critically important tools for businesses, because they provide financial flexibility while keeping their balance sheet clean. Businesses can then leverage that balance sheet to better attract investors, and to more easily qualify for future loans from their primary lender. In this way, businesses can keep their growth efforts funded, while insulating themselves against sudden cash flow interruptions brought on by economic changes.