“When the facts change, I change my mind. What do you do?” — John Maynard Keynes
At the last Reserve Bank Board meeting, the dreaded “R” word made its way onto the lips of its Governor, Michele Bullock. Australia’s most recent recession, during COVID‑19, was highly unusual. At that time, government relief in the form of JobKeeper, cash‑flow boosts, an insolvent trading moratorium, as well as changes to ATO collection policies meant that business insolvency numbers went down, not up.
The cost to the public purse was high: approximately $300 billion was borrowed to pay for supporting business. It may also be argued that the effect of all that additional cash flowing through the economy was felt years later in higher inflation.
The last time Australia experienced an economic shock that felt like a recession outside COVID was during the Global Financial Crisis in 2008–09. While Australia technically avoided a recession, markets fell sharply, confidence in the banking system was shaken, insolvencies rose, and the Federal Government introduced extraordinary measures to stabilise the system.
So, what could cause a recession now? One obvious risk is the escalation of conflict in the Middle East. The likelihood of Australia having to ration diesel increases proportionally with the timeframe of the war. Australia is at the back of the queue when it comes to global supply chains. If supply is further disrupted, fuel prices will continue to rise at the same time the RBA applies its handbrake to the economy through higher interest rates. Prior to the Iran conflict, increases in fuel prices have largely been driven by demand rather than supply—but that balance can change quickly.
So, to help ensure your client’s business doesn’t end up needing a restructure or liquidation, here are a few practical things to think about in the months ahead:
Review profitability
Focus on what is genuinely profitable. Prioritise margin over turnover, even if that means shrinking revenue. Revenue does not equal profit, and in a downturn, chasing volume can be the equivalent of trying to catch a falling knife.
SWOT analysis
Revisit your business’s key strengths, weaknesses, opportunities, and threats. Are your clients particularly vulnerable to a drop in discretionary spending? Or are they in a sector such as healthcare that tends to be more recession‑resistant?
Review your staffing roster
Wages are the largest cost for most businesses. If your client needed to contract to protect profitability, which roles are critical? What would the cost of redundancies be, and could the business fund them?
Working capital
Ensure your client has enough cash on hand to cover contingencies, including redundancies. Depleted working capital severely limits a business’s options, including its ability to restructure.
The next few months could be a wild ride (assuming we don’t run out of petrol), so now is the time to stay disciplined, flexible, and focused on the fundamentals.
Government Assistance
The Federal Government has already announced some assistance to businesses that are being impacted directly by fuel price increases. Keep abreast of these developments so that you can factor them into the business’s forward planning.
Credit Terms
Review invoicing practices and accounts receivable terms. Faster invoicing can translate to faster payment. A bad debt can have an aggravated effect during a recession, so be wary of extending further credit to already poor payors.
Don’t Undercut Yourself
Unfortunately, I have seen businesses tender to do a contract at a loss, hoping to pick up profit in variations or to just keep cash coming in the door. It’s very difficult to recover from completing jobs at a loss. Taking work on that is not profitable, just to keep “cash coming through the door” can be a shortcut to insolvency.
Health
One aspect that is often overlooked during periods of economic uncertainty is the mental health of business owners. Ongoing pressure from rising costs, cash flow stress, and difficult decision‑making can wear people down and, over time, affect judgment. Recognising these pressures early and seeking advice is a win-win for both the business and the owner.
"Keep Calm and Carry On"
Economic shocks tend to expose problems quickly, but they also reward disciplined businesses. Understanding where profits are truly made, protecting working capital, and avoiding margin‑destroying decisions materially improves a business’s ability to weather volatility. While business owners can’t control fuel prices, interest rates, or geopolitics, they can control how prepared they are. Staying focused on fundamentals and acting early gives businesses the best chance of navigating whatever comes next without being forced into last‑minute restructures or worse.
