Credit Matters

Reviewing a Recession - A Calendar of Events

By Kim Radok, August 2020 Updated: 7 June 2021

The focus of this feature is to document a living recession from the perspective of a professional risk manager and front-line operator’s perspective. This review is designed to help identify the nature and progress of the events of the recession.

Due to so much conflicting information at the moment, I have presented my version as simply as possible.


Background to Recessions

Recessions and business downturns occur regularly as a normal component of all business cycles. In a downturn or recession, there are many casualties from all areas of our lives; business, consumer and social. Downturns and recessions are not simply about losses however. They also offer possibilities to make money by seizing the opportunities that always arise during these events.

History shows us, on average, downturns and recessions occur every 10 years. The previous recession (or “downturn”) prior to the GFC (Global Financial Crises) was the exception at 14 years.

In 2018, ten years since the start of the GFC, I thought it timely to prepare a feature on the characteristics of a recession. You can find THE ANATOMY OF A RECESSION at www.creditmatters.com.au

The reasons to focus on a recession at that time were detailed in the feature. However, I feel it appropriate to discuss the three most important at this time. These are, that many business managers, or owners:

  1. today have no experience, or true concept of the ramifications associated to a substantial business downturn or a recession;
  2. (ii) are unable to identify and review the lead-up to a pending recession as an opportunity to mitigate the negative effects; and
  3. (iii) need encouragement to be positive and benefit from the overlooked opportunities which always occur during a recession.

Waiting for the declaration of a recession is often too late to take effective action. The earlier you start to work on your affairs, the better. If you take the right action early, not only may you survive, you could actually make more money than normal even during this, often debilitating, period.


Introduction from March 2021 to May 2021

Three months have passed since our last Australian recession update and the COVID19 virus is still causing many changes in our professional and private lives.

While it’s abundantly clear there are no shortcuts for returning to “normal,” many new business opportunities are being created all around us.

However, despite the positive opportunities, many outstanding debt issues are becoming evident. It’s also apparent that little has changed in the mindset of many business people. Still too many appear to act as if their business is immune from the effects of the recession and pandemic.

The Downside of the March to May period for Australian Businesses

It’s evident that few business people have realised that business practices have to change during the recession and pandemic. For example, improving cashflow and reputations is an ideal starting point. Unfortunately, perhaps the good news stories in the media are inspiring them to simply trust that “it will all work out - somehow.”

Unfortunately, our international borders remain largely closed which prohibits the return of Australians from overseas, along with students and workers which many businesses rely on to keep operating.

Meanwhile the mere mention of a virus-affected-tourist leaving quarantine strikes panic into our state premiers. As a result, recuperating businesses are disrupted again, whilst incurring further costs. Doubt is also evident in many domestic tourists’ minds on whether the risk of a 14-day spell in isolation, or from incurring extra costs whilst not earning their normal income, is worth travelling interstate at all.

Management of many of our larger corporations are continuing to fall back on time-honoured, value adding business methodologies. Many of these former strategies have not stood the test of time of actually adding value to the business. As these unsophisticated and often ineffective strategies are implemented, we see the poor results repeating and/or creating new problems from those that have been said to be eliminated. These strategies have been discussed in detail in our previous reports.

The RBA advises the bottom has been reached for interest rates and is unlikely to be reduced further. It is also unlikely that rates will be increased for the next few years. These predictions may have to be changed as inflation, caused by various factors, is increasing and the unemployment figures are said to be improving.

As with all recessions, there will be profitable sectors of the market, while others suffer genuine problems. Once the poorer businesses and their zombie cousins start closing down, this will impact negatively on all their suppliers’ cashflow and profits. No business is going to survive entirely unscathed as insolvencies and preferential demands by insolvency administrators are bound to increase as a result.

Businesses Globally

Nothing has changed from our previous reports which are repeated below.

The constant breakouts of the virus, lockdowns, border closures and local wars will continue to curtail the movement of people and cause disruption to previous business practices. The volume of business closures is higher than ever, even if they are not ending-up under an insolvency administration. Whole industries, as in Australia, are affected negatively due to a lack of people attending face-to-face conferences, entertainment venues and sporting events.

We are also seeing how shortages, (and/or slow, or no delivery) of goods is affecting businesses across the world. Building supplies, inputs to build technology products, consumer goods and motor vehicle component deliveries are being delayed with shipping costs on the increase. As a result of supply chain problems, businesses (many with already declining profit margins) cannot continue to bear increasing costs. In turn, all these costs must flow through to all business and consumer communities, creating an inflationary spiral which may easily get out of hand.

Furthermore, businesses and peoples’ spending habits are changing; even as we write this report. The volume of retail sales of discretionary goods and services is volatile, ranging from the positive to the negative. The same goes for many businesses offering essential products and services.

Businesses are now reducing their investment spend as they analyse their expenses. The exception is with compliance, and/or on changing their work structures. The problem is that many businesspeople doubt whether these costs add any real value to their business(s) or customers.

Government and Other Support (or Lack of it)

Direct government support for employees has now closed down for many specific industries and businesses. Meanwhile, specific support programs are available for training and development of other industries. This support, however, will in time, become increasingly unsustainable; even if many people are kept in business and more profitable businesses are created in the short-term.

One of the real problems is that, increasingly, we see ever more money is being made available for infrastructure spending around capital cities. Unfortunately, many people are deserting the major cities for city fringes, the suburbs and regional areas.

As a result, the demand for more government spending on infrastructure spending in regional areas is increasing. There has been a lack of regional spending in previous years and now with increasing populations, it is more important than ever. As discussed in previous reports, this spending would also bring additional diversity of work and prosperity to the regional areas of our country. It would also seem that governments would receive a greater benefit for the dollars they spend with this approach.

How ironic that it is when governments wanted to decentralise business and government jobs to the regions a decade or so ago. The aim was to take the pressure off the major cities and create more regional jobs. That experiment failed, mainly due to the fact that people didn’t want to leave the cities. Now that people are deserting the major cities in their droves, city centric people with vested interests are demanding more money for infrastructure in and around the big cities.

Unfortunately, the latest Victorian Sate budget is geared to add extra costs to many businesses and consumers in Victoria. And not just in Victoria. There are many critics who point out, this budget will make the recovery in Victoria even more difficult.

Lack of Urgency

Government handouts, rental deferrals and a stay on insolvency requirements are also coming to an end in Australia. The ATO (Australian Taxation Office) has been willing to assist in the short term. They are however, now advertising that all businesses will soon need to resume paying their taxes.

The time for all zombie and other struggling businesses to get their affairs and commitments in order, is quickly running out. The situation for their suppliers is starting to get critical. For example, if these businesses do close, any existing debts will remain unpaid. Then, even if the suppliers did receive any payments within the previous six months, these payments may be deemed to be preferential payments. If that is the case, insolvency administrators will seek the return of those preferential payments.

In spite of the above factors, it also appears there still seems to be little urgency from business people to try and protect themselves, their businesses and reputations proactively.

The business people who are aware and trying to do something, fall in to two main groups, (as detailed in previous reports).

The first group will take positive action as though nothing is wrong and project a normal approach to their strong business practices, with few signs of weakness as they go about their affairs.

The second group will rush around in a panic and send out red flags, showing they are in trouble. In turn, this approach will end up costing themselves a chance of survival because of the extra costs incurred as switched-on creditors start to demand prompt payments.

Changes in the Major Cities

As the pandemic keeps rearing its ugly head, the recession deepens and major cities around the world are becoming increasingly unattractive for business, for the people that live there and for visitors. These cities are desperately trying to avoid becoming ghost towns or irrelevant to people’s lives. Meanwhile, the empty stores, resulting from fewer people on the streets, makes the cities even more physically unattractive. Unfortunately, city councillors are still advocating throwing even more money designed to attract workers and visitors back, even though evidence shows many people are reluctant to return. Not even with the backing of government and their bureaucracies, plus big business and traders, are people returning in the numbers required.

It is unlikely that major cities will be attractive to new social infrastructure-type businesses as they see current businesses of a similar type closing their doors. On a recent visit to the city of Melbourne I saw a large number of empty shops and buildings. This observation was backed up by a recent report which estimated 20 percent of buildings in Melbourne remain unoccupied.

I did note however a large number of restaurants were relatively well patronised for dinner. Whether restaurants can survive on one meal a day, is another story. It will be interesting to see how many restaurants and cafes which only open for breakfast and/or lunch can survive.

Finally, as I write this report, it is stated that the Victorian government is raising taxes and will open another drug injecting safe house in Melbourne’s CBD. Currently, the opinion of many is that these actions will not help the city survive, let alone return to being the most liveable city.

We note counsellors and businesspeople in many other cities around the world are looking at all sorts of progressive and interesting ways to reinvigorate their cities. Unfortunately, it appears many of Australia’s major city counsellors and their business people are resorting, at this stage anyway, to the old strategies without any true innovation. As such, it is feared that much public money and their efforts will continue to offer little positive return.

Pent Up Demand Recovery

Today the theory that the pent-up demand for buying will soon see the retail and consumer business environment recover. There are many reports in the media, where businesspeople, economists and others, claim that pent up demand, coupled with increased savings, will lead the recovery.

Unfortunately, this theory is not always been backed up by evidence from the real world. Yes, spending has increased in a number of sectors of the economy, however there are many sectors still missing out. Nevertheless, many people are still cautious and would be reluctant to splash out, despite the glowing reports of the economy rebounding and by the positive news presented in the media from parties with vested interests.

For conservative minded people, there are still too many “unknowns” as lock-downs continue around the world; and even in Australia. With state premiers rushing to lock-down or restrict travel movements as soon as another virus carrier is found after leaving quarantine, just reinforces peoples’ concerns. The current lockdown of seven days, now increased to 14 days, (due to Melbourne’s latest outbreak) is not going to help.

In addition, the ongoing requirements for people to get tested and stay isolated for 14 days, some without payment, or without the means to earn an income, just causes more angst for everybody.

The great saviour! The roll-out and take-up of vaccines, is not progressing as well as intended. Due to the apparent inconsistency of information on how, why and type of vaccines available, continues to play on peoples’ minds.

Many naïve and vulnerable people are still losing large amounts of money to scammers, fraudsters, and poor investment decisions. With savings running out, or lost, they are also spending less, especially as their returns from traditional safe investments are further reduced. In turn, this must impact on current and future spending.

From another perspective altogether, the RBA’s actions have created three asset classes; land, the share market and cryptocurrencies. Values have risen to such ridiculous levels that this has created asset bubbles. As a result, if any great reduction in asset value should occur, more and more average Australians, including the FOMO (fear of missing out) class, are at risk of suffering major losses.

As we have seen in the last few weeks, with the fall in the value of bitcoin, it is obvious the adage of investment is true. “What goes up, can come down.” The number of cryptocurrency investors who have lost money directly, or will lose money if they borrowed to buy the currency, may never be known in the short term. However, what is a known certainty, is their future spending capacity has been reduced accordingly.

Whilst there may be pent up demand, with many dollars still in savings, the current state of affairs means that many people continue to save, or remain hesitant to spend.

Destruction of Trust

Increasingly, in regards to our politicians, government bureaucrats, RBA and others in powerful positions, we see the reduction of trust continue. Due to the great disconnect in their actions and the actual effects happening in many peoples’ lives, the general public is fast losing its trust for many of these parties.

You then look at what state governments are doing, and the distrust of politicians is further eroded. The most obvious examples start with the pay and benefit increases for the politicians and their bureaucrats. Other negative examples are the border closures followed by wasted money advertising for interstate tourists. The Victorian Government’s latest budget has also done nothing to enhance the trust of their citizens, and which, has fuelled a high degree of anger, especially in Victoria.

It will be interesting to see the effect on land values and jobs around the country and in Victoria in particular. What many people may not see at this time, is the potential side effects this budget will have on peoples’ lives, jobs and land values in other states. Unlike most state budgets, this budget is likely to have a material effect in other states in the coming years.

Other Factors

The great battle for qualified employees continues across all states, and specific regions, plus in many industries. These issues have been explained in previous reports and continue to appear almost daily in the media.

We also know from press reports and feedback from removalists, people were, and continue to leave Melbourne and other areas of Victoria at an unprecedented rate. It appears this mass exodus has been building over the past year, before the recent state budget. Post budget, it would not be surprising if this rate continues for years to come. History repeating itself...?

However, there are other factors in play, which are adding costs exponentially to all businesses, irrespective of size. As a result, notwithstanding of whether they are good or bad, these costs are being forced on to the business community, severely inhibiting a business’s ability to make a PROFIT.

What is equally bad is, many politicians, bureaucrats, unions and other do-gooders which are forcing these costs on business, will probably never support those businesses which incur these costs. As is the case of many of these “cost dictators”, price will dictate who and where they buy from. To add insult to injury, many of their purchases will not even be supplied by Australian based businesses.

If you cannot make a profit, why-in-the-world would anybody start up or keep a business going? This question never seems to enter the minds of those which are advocating and forcing all the extra costs on businesses.

Even if business owners decide to continue operating, they will look for other methodologies to operate in the hope of making a PROFIT. Unfortunately, the result will be that many of the people the politicians, bureaucrats, unions and other do-gooders reportedly wanted to help, will suffer adversely.

The banking industry is adding to the woes and costs of business owners by closing branches, or operating with inadequate staff numbers and/or poor processing philosophies. Their one-dimension philosophy of driving customers to use digital facilities, poorly supported by proper human backup, creates unnecessary costs being forced on business owner and consumers.

The Positive Aspects noted from December to February

The same positives which were evident in previous months have continued in this quarter.

Governments have continued to offer some level of support to people who have lost their jobs, or to keep businesses from closing down.

The organisations and people who continue to support those less fortunate, or lonely, or who have lost their employment, continue to do their best in a very difficult environment. These organisations are now under increasing pressure as increasing numbers of people are seeking help. Meanwhile the numbers of people volunteering and willing to support these organisations are declining.

Inspiring and interesting stories continue in the media of businesses and individuals from all sections of the community which have adapted and are creating new products and services. Apart from a small number of industries, it appears many other businesses and industries are adapting the way they operate with positive outcomes for all stakeholders. Hopefully many of these efforts will flow into other industries and continue to be profitable well into the future.

Many businesses are learning and adapting to new ways of working with their suppliers, customers and employees. By learning to collaborate, these businesses find a better way of helping each other and find better strategies of doing business. There are also many stories continuing to show that new businesses are being created out of old ones, combined with new innovations.

Due to the lockdowns and state closures, the increase in visitor numbers to regional areas of each state continues to support local rural businesses. There is also a major emphasis on the concept of supporting Australian businesses, even if their prices are higher than those of their competitors. These developments are in part due to innovative marketing programs, coupled with the adaption and use of advancing technology. These interventions have assisted in the survival of many small businesses in regional areas.

As more people leave the big cities, migrating to regional areas, hopefully, government will supply a better standard of support services in those areas. Of course, this will be one of the major conundrums for all governments. Do they continue with infrastructure spending that benefits major cities, (with depleting populations) or do they spend on the regional areas where the population is increasing?

In Summary

There have been a small number of positive aspects from the March to May 2021 period, which continue to give businesses hope. An increase in consumer spending in a number of areas, such as restaurants and manufacturing industries are examples.

It is also evident, customers, when they can, are supporting local businesses, and are even prepared to pay a premium for local goods and services.

Regretfully, we also continue to see the worst of human behaviours and organisations which we rely on and/or, look up to for guidance.

The behaviour of many politicians, bureaucrats, the RBA and others with power, are causing, many people to lose faith and despair for the future. The Victorian government’s latest budget is a perfect example of the lack of understanding on how the recession is affecting all people.

There are also too many business people who are not taking positive steps to restore, or confirm, their payment and financial reputations. It is these businesspeople who will find it difficult to continue with traditional and out-dated business practices as business insolvencies keep rising.

When you add up all the costs being imposed on businesses these days, in the long term, the outlook for many employees is not promising. This means many people may end up without a job, or even unable to find one. In turn, this will have a flow-on effect for families, the business community, government revenue and spending.

In light of the above, many people already see no light at the end of the tunnel, with only ongoing negative projections for the future. This situation is likely to continue for the rest of 2021.

If you have any questions, require any further information or need support, contact kim@creditmatters.com.au or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608, or Mb: 0411 649 261.

Introduction from December 2020 to February 2021

Three months have passed since December 2020 and the COVID19 virus and its affects have continued to dominate nearly all aspects of our personal, social and business lives.

It’s clear this virus continues to be a real problem, especially as it is now mutating and has reasserted itself in many countries.

Many of the negative business and outstanding debt issues, which are yet to be felt, remain in place. It also appears that little has changed, in the mindset, of many business people who appear to act as though barely anything has changed within their business.

The Downside of the December to February period

Business

In Australia

It is still apparent, that few business people have realised that doing business has changed due to the recession. Many still seem to be fooled that all is well because retail in most areas was doing okay; housing and share market values were improving leading up to Christmas and in to the beginning of 2021. Retail sales were especially on the improve.

The above situation is unlikely to continue however, due to the detrimental effects of constant border closures in Australia. Meanwhile since Christmas, the plight of the tourist, arts and sports communities continues in all states.

The thoughts of the captains and senior managers of large corporate business make interesting reading, (if you have followed their statements in the media). Most of their comments seem to indicate a lack of interest in protecting their business’ reputations, ensuring revenue from sales is collected as quickly as possible or in quickly paying down their debt(s).

Rather, we see the same old objectives of cost cutting, staff training, outsourcing, automation, digital transformations, retrenchments, taking advantage of cheap interest rates etc. These strategies have been popular in the past. However, a number of these strategies will now cause more damage than benefit. After all, interest rates are unlikely to keep falling and can only go up, especially if inflation occurs

Furthermore, too many zombie companies still exist. The negative effect on suppliers’ sales and accounts therefore is yet to be felt. When the wholesale support stops, the real pain will begin, and no business, especially those offering B2B credit will escape unscathed.

Many people involved with businesses which are not doing well, or just surviving, are still not asking the questions they should; about the possibility of insolvency. This is despite warnings from insolvency administrators and other business professionals who are increasingly advising directors and owners that this may be a wise action to take.

Globally

The situation in many countries is even worse than in Australia; due to constant lockdowns, border closures, and local wars. These are the actions which curtail the movement of people and cause disruption to normal business practices. Businesses are closing faster than ever. Whole industries, as in Australia, are affected negatively due to a lack of people going to face-to-face conferences, entertainment venues and sporting events.

Furthermore, businesses and peoples’ spending habits are changing; even as we write this report. The volume of consumer sales of discretionary goods and services is volatile, ranging from the positive to the negative, depending on the business needs. Businesses are now also in many cases, currently reducing their investment spend. Furthermore, much of their current spending is now on compliance, and/or on changing their work structures, as they try to survive in a COVID world.

Government and Other Support

Short term support by governments, creditors and debt collectors is just that, short term. When the day comes to start paying the bills and deferred debts again, that is when the real problems will surface.

A number of government support programs are coming to an end in Australia as it is suspected they also will in other countries. The current level of support is becoming increasingly unsustainable and will have many negative consequences in the years ahead. Of course, there are those countries which will continue to print money and offer support, irrespective of costly repercussions to their citizens over the long term.

Government initiatives are still being fine-tuned as governments try to keep specific businesses and industries viable and people in jobs. Unfortunately, reviewing what is on offer, many of these initiatives will arrive too late, or be insufficient to keep businesses alive and their employees in work. Alternatively, many of the initiatives will be wasted on the wrong targets.

Lack of Urgency

Government handouts, rental deferrals and a stay on insolvency requirements are also coming to an end in Australia. However, there is another bogyman sitting on the sidelines which has also taken a benevolent view of payments to date. The ATO (Australian Taxation Office) may have been willing to assist in the short term. We note however, they are already advertising that businesses will need to start paying their various taxes, employee superannuation, and BAS etc.

The time for all zombie and battling businesses to get their affairs and commitments in order, is quickly running out. Even worse for their suppliers, is the fact that any existing debts at the time these businesses close are unlikely to be paid, plus there is the likelihood that insolvency administrators will seek the return of preferential payments made before the closure.

It would appear the situation above will be similar in many other countries, which will also negatively affect global exporters.

In spite of the above factors, it also appears there still seems to be little urgency from business people, in any country, to try and protect themselves and their businesses proactively.

The business people who are aware and trying to do something, fall in to two camps.

The first camp is those with a strong emphasis on proactively (i) collecting debts owed to them, (ii) clear debts they owe and (iii) build up cash reserves. More importantly, they are enacting strategies that show no sign they are in a panic. In doing so, they are also sending signals they are operating within normal business terms and not receiving preferential payments. In this operating mode, they are protecting their business and financial reputations.

In the second camp are those who suddenly realise that their business is in trouble. In an effort to survive, these businesses exhibit signs of panic. As a result, they rush around collecting all the debt they can, in such a clumsy manner, it sends out the message they are in trouble. In addition, they are also frequently forgetting the principles of good business. As a result, their day to day operations become sloppy and inefficient.

It is the second camp of businesses which get in to the most trouble through a failure to quickly and professionally collect their outstanding debts, many of which may be subject to preferential payment action. Even if these businesses survive, their reputation and standing with their customers is usually tarnished for many years.

Changes in the Major Cities

As lock downs continue, border closures go up, as a result, there is a serious lack of tourist and visitors. The major cities of the world therefore are desperate to avoid becoming ghost towns. It is only now that city counsellors are starting to realise, that the “old normal” has gone, at least for the short to medium term. Consequently, the people who mean well and are still advocating businesses to return to the city as if nothing has changed, are potentially wasting their time and money.

Trends from overseas cities show they are being reconfigured in many different ways by their remaining citizens. A number of changes are positive and others are negative. Whilst a large number of people are permanently leaving the city altogether, others are moving to different areas within their cites.

Business people, city counsellors and governments are wanting people to work and shop again in their major cities. Unfortunately, due to the constant lockdowns, everybody is losing confidence and businesses are closing for good. With major tourist groups and conferences not returning in the short-term, this will exacerbate the situation even more.

Consequently, it is unlikely that major cities will be attractive to the new social infrastructure type businesses for some time. This begs the question: “How do the major cities survive intact in the meantime until the people return?” It appears until city counsellors and business people change their vision and focus on reconfiguring their cities, many of their efforts will be in vain.

Pent Up Demand Recovery

The theory is, as people are saving and not spending for many different and logical reasons, the pent-up demand for buying will soon see the retail and consumer business environment recover.

Unfortunately, this theory is not always backed up by the real world. Yes, as lock-downs have been periodically lifted, there has been some increased spending. However, it has levelled off since the traditional Christmas period. With new lock-downs around the world, and doubts, by many, on the effectiveness of vaccines, businesses and people have stopped spending again. Due to the inconsistent information, the uncertainty continues.

No one is sure of anything anymore, or what the new normal will look like. People who are naturally conservative, and/or frightened of the future, are saving, paying down debt and only spending money on the essentials, or perhaps occasionally on a few small luxuries.

Whilst there may be pent-up demand, we know much of the money provided by government handouts has been already used-up on clearing debts, or just surviving. We also know that money spent on drugs goes on unabated, and increased expenditure on alcohol and gambling is continuing.

We also hear evidence of large quantities of money being lost to scammers and fraudsters.

In another sign of the times, the share market seems to be the new casino-of-choice as people. Currently we note many young, first-timers, or the naïve, think that the share market always goes up. Already we are hearing of losses as people speculate on which direction the stocks will move. Goodness knows how many will suffer huge losses, should the markets fall again to any major degree.

So where is all the money going to come from to fund the pent-up demand theory?

Destruction of Trust

Another disturbing factor has become obvious. It is to see the people and organisations we all depended on, or looked up to, flounder or actively work against the good of the communities in which they operate or serve.

These factors were presented earlier and it appears, those that we rely upon to lead the way, are still avoiding their moral and civic responsibilities. As a result, people are not heeding to the demands, (and requests) for understanding, or the statements that “… all is good and they have all the answers.” Which they clearly do not!

Other Factors

There is sound evidence that many employees, and others, receiving government benefits, at times greater than their normal wages, are refusing to go back to work. Viable businesses therefore, are unable to reopen properly. It will be interesting to see what happens if, or when those workers seek a return to work.

At the end of February, businesses still cannot find employees unless they are paid “X” dollars above government handouts. In addition, there are many people who are just not prepared to do the work which is available. because it is “too hard”, or they are not prepared to venture into regional areas of Australia – where there’s plenty of work.

A number of unions still do not appear to accept that the recession, or, at least, a very bad business downturn is with us. We still see their continued demands for more and more benefits and wages. As a result, many of the unions which are demanding more increases, are working against the employment, and benefit of their members. In the case of many smaller businesses, there is simply no profit leftover to pay these additional demands. Many business owners therefore continue to look for other ways and methodologies to operate in hope of producing a PROFIT.

It is therefore pleasing to see against the above trends, that there is an initiative currently being work out. We have sighted evidence that a new employment arrangement is being brokered with the unions to help small businesses. Whether it eventuates, and/or amounts to anything is another matter entirely. We all live in hope that it will become a reality.

The story of the two banks continues to play out with a great disconnect between the central banks and retail banks. The central banks are advocating debt and spending is good, saving is bad. While, on the other hand, the retail banks are saying, because there are so many risks, and interest rates being so low, they require security to lend.

The Positive Aspects noted from December to February

Governments have continued to offer what they can to support people who have lost their jobs, or to keep businesses from closing down.

We must also applaud all the organisations and people who continue to support those less fortunate, or lonely, or those which have lost their employment. It is pleasing to also note the efforts of local charities which continue to try and support the less well off. Sporting organisations are also trying to look after their members and supporters.

Unfortunately, many organisations which support others are doing so without any support from governments, although they (Governments) also benefit indirectly from the work of these organisations.

There are inspiring stories in the media of businesses and individuals from all walks of life and circumstances, which have adapted and are creating new products and services. The range of new or adjusted products and services are almost never ending. Hopefully many of these efforts will continue to be profitable well in to the future.

Many businesses are learning and adapting to new ways of working with their suppliers, customers and employees. Through collaboration comes a better understanding of each parties’ needs and finding better ways of doing business. There are many interesting stories continuing to show that new businesses are being created out of old ones, or new innovations.

One major benefit of the lockdowns and state closures, has been an increase in visitors to the regional areas to support local businesses. As more people leave the big cities, and with increased numbers of people visiting regional areas, hopefully there will be a better standard of support services in these areas. Of course, this will be one of the major conundrums for all governments. Do they continue with infrastructure spending that benefits major cities, or do they spend on the regional areas which see an influx of people?

In Summary

There have been a small number of positive aspects which continue to give businesses hope from the December-February period. There has been an increase in consumer spending as people are now permitted to leave their homes more often.

Regretfully, we continue to see the worst of behaviours of the people and organisations which we rely on and/or, look up to for guidance.

Many business people are still in denial of their situations, and therefore, are taking little proactive action to restore, or confirm, their payment and financial reputations. As a result, with the lack of business acumen and urgency, the ongoing viability of many businesses is in question. Undoubtedly, with many people still seeing no light at the end of the tunnel and the ongoing negative projections of the future, this bodes ill for all of us in the future.

The real problem we all face, is that apart from those who are already experiencing the worst of times, the real pain is yet to be experienced. That time is still six to twelve months away. In the meantime, with few positive factors visible, the truth is that the negative factors are slowly and actually multiplying.

If you have any questions, require any further information or need support, contact kim@creditmatters.com.au or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608, or Mb: 0411 649 261.

Introduction from September to November 2020

Another three months have passed in 2020, where the COVID19 virus and its affects have continued to dominate nearly all aspects of our personal, social and business lives. It is interesting to note the variety of approaches by different countries, and even the states within the same countries, on dealing with this virus.

What is clear is that once an area is clear of the virus, despite the best efforts of the authorities, cases of the virus can still reappear. New Zealand and South Australia are perfect examples which had appeared to be clear of the virus for some time.

Many of the negative issues which are yet to be felt, remain the same as for the previous period of May to August and are repeated again below.

The Downside of the September to November period

Business

It is still apparent, that few business people have realised that the processes of doing business have changed because of the recession. Many seem to be fooled that all is well because retail and housing sales are improving.

There are many zombie companies which are still hanging on because of reduced rates, the slow payment of suppliers, government handouts, restrictions on debt collection and a different approach to short-term relief on insolvency laws and trading insolvently.

As a result, we are yet to see many businesses entering insolvency administration and a follow up of preferential payments by insolvency administrators.

Unfortunately, many more businesses may still go out of business because of external factors they cannot control, including:

  1. the removal of government support;
  2. the realisation that many of their customers will not be coming back and as a result, their business has little future;
  3. on-going supplier and customer frauds due to a desperate attempt to “sell” their way out of insolvency;
  4. the removal of creditor’s rights in some jurisdictions to pursue legal costs even where there is a legally binding contract allowing such action;
  5. preferential payments to be repaid or defended in the future, etc.
  6. living in the hope of finding a “white-knight” investor to save them from insolvency and prevent them losing everything, etc.

Government Support

Short term support which has been offered by governments, creditors and debt collectors to keep many enterprises going, is just that, short term. When the day comes to start paying the bills and deferred debts again, that is when the problems will really occur.

Further government initiatives are still being announced as governments try desperately to keep businesses solvent and people in jobs. Unfortunately, reviewing what is on offer, it appears many of these initiatives will arrive too late to save many businesses, and their employees, or be will be wasted on the wrong purposes.

Lack of Urgency

In spite of the above factors, it also appears that there is no urgency in the business community to protect their financial and payment reputations. We still notice slow payments, a lack of responses to enquiries regarding outstanding invoices and few “catch up” payments to restore payment reputation.

The engagement of professional employees coupled with the implementation of sophisticated strategies, are still missing within many of these same businesses. Again, these factors are another component which may have helped avoid the worst of any problems caused by the recession.

Changes in the Major Cities

A further demonstration of the changes ahead can already be seen in the major cities of the world. People and businesses are leaving and many will be on a permanent basis. Those businesses which are leaving or not reopening, include the supporting infrastructure type businesses such as florists, hairdressers, dry cleaners etc. 

It is only now that business people and governments are starting to tell people it is okay to work and shop again in the cities. However, many workers are either restricted from returning, or do not want to return. When you cannot force people to return to work in the cities, these calls will have limited success, especially when people are afraid or have enjoyed working remotely. It also appears, worker numbers are going to be limited until well into 2021 as businesses struggle to operate in a COVID safe way.

Furthermore, major tourist groups will not be returning in the short-term, and maybe still not at all in 2021. Unfortunately, neither will many major events such as conferences, sporting and artistic be held until late in 2021 with their usual crowds unless an effective vaccine can be found.

Many businesses are also still refusing to open because of government regulations regarding numbers and social distancing. These restrictions are impacting on the viability of the business who see no point in opening, only to go broke.

The question therefore remains: “How do the major cities survive intact in the meantime until the people return?”

Pent Up Demand Recovery

There is currently much talk of the regeneration of business and the economy will occur naturally through “pent up demand” when the lock downs and restrictions are lifted. However, past evidence suggests much of the money not already spent on consumables or additional work or household goods, has been used for other purposes.

Nevertheless, there has been a positive turnaround in spending as restrictions are being lifted and interstate barriers come down. Whether this spending is sustainable after Christmas is another story.

Destruction of Trust

Another disturbing factor has become obvious. It is to see the people and organisations we all depended on, or looked up to, flounder or actively work against the good of the communities in which they operate or serve. 

These factors were presented previously and it appears, those that we rely upon to lead the way, are still avoiding their responsibilities. As a result, people are not heading the demands and requests for understanding, or the statements that “… all is good and they have all the answers.”

Other Factors

First, a number of employees and others receiving government benefits, at times greater than their normal wages, are refusing to go back to work. Viable businesses therefore, are unable to reopen properly. It will be interesting to see what happens if and when those workers seek to return to work.

At the end of November, we still hear of stories where businesses cannot get employees unless they are paid above “X” dollars above government handouts. In addition, there are many people who are just not prepared to do the work which is available because it is “too hard”, or they are not prepared to go where there is plenty of work in regional areas of Australia.

A number of unions still do not appear to understand or accept that recession, or at least a very bad business downturn is with us. We still see their demands for more and more benefits and wages. In the case of many smaller businesses, there is simply no money left to pay these demands.

As a result, the demands for more, work against the employment of people. Many businesses owners will not forget and therefore continue to look for other ways and methodologies to operate their businesses for a PROFIT.

The story of the two banks continues to play out with a great disconnect between the central banks and retails banks. The central banks are advocating debt and spending is good, saving is bad. The retails banks are saying on the other hand, because there are so many risks, and interest rates are so low, we require security to lean. 

The Positive Aspects noted from September to November

The actions of Governments have continued to seek and offer what they can to support people who have lost their jobs, or to keep businesses from closing down. These actions are designed to mitigate the worst effects of the anticipated recession; at least for the short-term.

We must also applaud all the organisations and people who continue to support those less well off, or lonely, or those which have lost their jobs. It is pleasing to also note the efforts of local sporting organisations which try to look after their members and supporters, often without any support from governments.

There are inspiring stories in the media of those businesses and people from all walks of life and circumstances, which have adapted and are creating new products and services. The range of the new or adjusted products and services are almost never ending. Hopefully many of these efforts will continue to be profitable well in to the future.

Many businesses are learning and adapting to new ways of working with their suppliers, customers and employees. Through collaboration comes a better understanding of each parties’ needs and finding better ways of doing business. There are many interesting stories continuing to show that new businesses are being created out of old ones, or new innovations.

Towards the end of November, we have seen various states starting to reduce the lock-downs and people are able to go about their business more freely. There has been a nice lift in spending in many areas towards the end of November as a result. 

In Summary

There have been few bright spots showing up through the September-November period, particularly with increased consumer spending as people are now allowed to go out more. However, we still continue to see the worst of behaviours of the people and organisations which we rely on and or, look up to for guidance.

In addition, the lack of business acumen, coupled with a lack of urgency, is also an inhibiting factor in the ongoing viability of many businesses. Perhaps a degree of what is happening is due to a what I call “COVID19 and recession fatigue”. This fatigue could well be due to the pressures of what seems to be a situation with no apparent light at the end of the tunnel and ongoing negativitve projections for the future. Combined with the daily grind of ongoing work required to just survive feelings this “fatigue” is understandable. 

The real problem we all face, is that apart from those which are already experiencing the worst of times, the real pain is yet to be experienced. That time is still six to twelve months away. In the meantime, for most of us, despite a few positive factors, what we will see are the negative factors slowly multiplying.

If you have any questions, require any further information or need support, contact kim@creditmatters.com.au or telephone +61 3 9886 6707.  Ah: +61 3 9802 0608, or Mb: 0411 649 261.

Introduction from June to August 2020

Another three months have passed in 2020, where the COVID19 virus and its affects have continued to dominate all aspects of our personal, social and business lives. It is interesting to note the variety of approaches by different countries, and even the states within the same countries, on dealing with this virus.

What is clear is that once an area is clear of the virus, despite the best efforts of the authorities, cases of the virus can still reappear. New Zealand is a perfect example which had appeared to be clear of the virus for some time.

The Downside of the June to August period

Business

To date, we have seen how quickly the virus has affected the world economies and the number of sick people and deaths world-wide. Unfortunately, despite all the losses, many people and the majority of the business community still do not get it. The world has changed around us dramatically, and we will continue to be negatively affected for many years. The old ways of doing business have changed.

What I really mean by that is the old ways of the last forty or so years have changed. The traditional ways of doing business haven’t. In the last 40 years we have seen many business models tried and proven to be wanting, even in the good times, let alone in this economic climate. The GFC proved that the fancy new ways of doing business was just a warning that traditional ways of doing business were essential for survival. It was a warning that has largely been ignored.

The businesses which currently appear largely unaffected in an operational sense so far, have been those which understood the importance of the proven age-old business practices. Most of these businesses:

  • had little or no debt;
  • cash reserves;
  • valued and understood the importance of good business discipline;
  • had a good business reputation;
  • a strong people culture; and
  • a respect for their customers and suppliers.

Reflection of these prudent and proven business practices can be found in every successful businesses’ accounts payable or accounts receivable ledger.

Unfortunately, some of these businesses may still go out of business because of external factors they cannot control, which include:

1          government and unelected bureaucratic dictates made by people who have never operated a business;

2          politicians and bureaucrats who are still playing politics instead of acting for their communities;

3          supplier and customer frauds much of which is supported by do-gooders, government directions and non-government organisations;

4          costly legal action to defend the business’s rights;

5          the removal of creditor’s rights in some jurisdictions to pursue legal costs even where there is a legally binding contract allowing such action;

6          preferential payments to be repaid or defended in the future, etc.

Many other businesses which may be already trading insolvently, are still operating because they are:

  1. able to convince their customers and suppliers into believing their business is worth dealing with;
  2. zombie businesses surviving on government handouts, cheap interest rates and slow paying their suppliers;
  3. naïve business people who believe they can wait out the current slowdown and then trade as if nothing has changed; or
  4. living in the hope of finding a “white-knight” investor to save them from insolvency and prevent them losing everything.

Government Support

Short term support which has been offered by governments, creditors and debt collectors to keep many enterprises going, is just that, short term. When the day comes to start paying the bills and deferred debts again, that is when the problems will really occur.

Lack of Urgency

In spite of the above factors, it also appears that there is no urgency in the business community to strengthen their business structures and processes to withstand future problems. For instance, organisational records are increasingly out of date, collecting outstanding accounts, answering critical customer enquiries, seeking early payment to protect against preferential payments or engage debt collectors, etc. These are important and essential factors which are essential components of survival as we work our way through the recession.

The engagement of professional employees in conjunction with the implementation of sophisticated strategies, are missing within many of these same businesses. Again, these factors are another component which may help avoid the worst of any problems caused by the recession.

Changes in the Major Cities

A further demonstration of the changes ahead can already be seen in the major cities of the world. People and businesses are leaving and many will be on a permanent basis. Those businesses which are leaving or not reopening, include the supporting infrastructure type businesses such as florists, hairdressers, dry cleaners etc. In addition, the businesses which supply the social needs of cities, for example, cafes, restaurants and theatres etc. will also be slow to return because of the lack of paying customers. It is these businesses combined, which have made the cities so vibrant and liveable.

History shows that after disasters or pandemics have occurred, there will always be fewer operating businesses, affluent residents and families with young children left in the major cities. Consequently, there will be less money to maintain the pristine appearance and fun elements which make the major cities so liveable. The environment will furthermore be less inviting due to the changing look of the city which will worsen due to vacant shops for lease or sale, alongside the untenanted business and residential buildings. With reduced incomes, owners and landlords will be spending less money on maintenance and the appearance of their buildings.

In view of the above it is very likely, again as history shows, the poor, homeless and petty criminals will return to the cities. These people will return because the city will now be more affordable and provide them with the environments in which they can survive.

Pent Up Demand Recovery

There is currently much talk of the regeneration of business and the economy will occur naturally through “pent up demand” when the lock downs and restrictions are lifted. However, current evidence suggests otherwise as frightened people are paying debts, saving and now spending differently.

Meanwhile, those people on government handouts have largely spent their money on just surviving, paying rent, alcohol, or gambling, and so this money is already gone.

Finally, there will be people unable to find work, or who will become unemployed when government support is stopped. This situation will be compounded when the periods of grace regarding insolvency or bankruptcy, debt collection and rent payments are removed. Once the zombie companies start closing down and other business people realise their business is unsustainable, the numbers of unemployed will further increase.

Each of the above employees and business owners who no longer have an income other than from a pension or other benefit, will probably have debts built up which need to be repaid. Again, a further drain on finances available for future spending capabilities.

Destruction of Trust

Another disturbing factor has become obvious. It is to see the people and organisations we all depend on, or look up to, flounder or actively work against the good of the communities in which they operate or serve. For instance, we see:

1          politicians and their senior bureaucrats playing politics and lacking the compassion and a level of common sense expected to help people with real-life problems;

2          politicians and their senior bureaucrats refusing to accept responsibility for their actions, and equally important, failing to learn from these mistakes, nor are they rectifying their procedures to prevent a future reoccurrence;

3          a number of major corporate businesses taking government handouts whilst refusing to pay their suppliers, and or, still paying bonuses to senior management and shareholders from “profits”;

4          a number of unions and their representatives which act as though the recession is not here, continue their actions based on historical ideological thinking, and demanding more and more from businesses of all sizes;

4          postal services not employing the resources required to maintain efficient services because delivering mail to people and business customers is deemed not as important as delivering parcels to those same customers.

Two Other Factors

First, a number of employees and others receiving government benefits, at times greater than their normal wages, are refusing to go back to work. Viable businesses therefore are unable to reopen properly. It will be interesting to see what happens if and when those workers seek to return to work.

Secondly, are the signs of Covid19 and recession fatigue where people and organisations of all types, seem unwilling or unable to see any positives. It is as though the problems are so great, there is nothing they can do proactively to take advantage. Regretfully, this situation is accepted by these people and organisations as a given. Their attitude is therefore unlikely to change until there is guidance from the authorities on how we can live with the pandemic and still operate successfully.

In the meantime, proactive people and organisations which may include competitors, could be taking the opposite strategy and seeking better ways of doing business. It is these businesses which will gain an advantage over those that are sitting back disillusioned and not doing anything.

The Positive Aspects noted from June to August

The actions of Governments have continued to seek and offer what they can to support people who have lost their jobs, or to keep businesses from closing down. These actions are designed to mitigate the worst effects of the anticipated recession; at least for the short-term.

We must also applaud all the organi