SIX ACTIONS TO DEAL WITH INFLATION AND INTEREST RATE RISES – DHKN Galway

SIX ACTIONS TO DEAL WITH INFLATION AND INTEREST RATE RISES

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By Dave Hickey

In our previous post we looked at some of the underlying challenges of inflation and interest rate rises. Today, three of DHKN’s experts focus on how you can take action now to develop plans to deal with the potential outcomes over the next couple of years.

Stephen Crowley, Partner DHKN

“The most important thing to do right now is not to panic,” says Stephen Crowley, Partner at DHKN. “You and your business have made it through the pandemic and, with some foresight, you can deal with this next storm as well.”

1 Evaluate your current position Take time to assess your financial position now and where you had planned to take it over the next couple of years. Set out your existing position as regards customers, staff, suppliers and financial institutions. What commitments have you made already and what assurances, if any, do you have from customers? If you have planned any significant spending, delay it until you have completed a thorough review.

2. Draw up a plan You may have already got a business plan and supporting financial projections for this year, but so many underlying assumptions about consumer demand, costs and interest rates will have been undermined by the events of early 2022 so, it’s unlikely that plan is still relevant to today’s economic outlook.

3. Model different scenarios There are a lot of variables to consider when planning and each of these could fluctuate significantly over the coming years. For example, the war in Ukraine is a significant driver of fuel and food price inflation. It’s difficult to see how this will end so taking a Best Case/Worst Case view should be part of your analysis. This also applies to other costs, consumer demand and interest rates.

Mark Gibbs, Partner DHKN

“Economists here are predicting at least a 2-3% rise in interest rates between now and 2024,” says Mark Gibbs, Partner at DHKN. “This will not only impact business but will also negatively impact individuals with variable rate mortgage increases, which aligned to food and utility cost inflation will reduce household spending.”

4. Identify potential pinch-points If your business is seasonal, you’ll be used to seeing peaks and troughs in your income and cash flow and should already be planning accordingly. However, the number of variables we face now means that many more businesses will encounter these pinch points more often. Understanding what actions can be taken to overcome these will be vital e.g. postponing spending, temporary financing, etc.

5. Secure back-up funding On the strength of a revised business plan and projections, as well as a clear understanding of how and when cash flow pressures might arise, you could approach your bank to secure an additional facility to be used ‘just in case’. Giving them advance notice in this way will stand you in good stead should you need the facility. A very experienced banker always tells me that while bankers often expect bad news, they hate surprises!

Robert Lohan, Director Taxation DHKN

“Your repayment period will be based on your ability to repay as set out in your business plan,” says Robert Lohan, Director of Tax at DHKN. “Care needs to be taken to include a realistic and sustainable repayment schedule in your plan.”

6. Engage with Revenue Earlier this year Revenue wrote to businesses which had deferred payment of taxes during the pandemic advising that it’s expected that repayment of this debt will start this year. If, as part of your planning exercise above, you believe your business will have difficulty making the repayments then you should engage with Revenue at the earliest opportunity to agree a payment plan.

Summary

The next 18 to 36 months may be very difficult for business with a lot of macro-economic issues affecting us all in addition to normal cash flow challenges.

The six steps outlined here are a good starting point for every enterprise. We know that every business is unique and if you’d like to discuss your specific challenges with one of our team, please contact Dave Hickey on 0876253657 or at dhickey@dhkn.ie.

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