If Interest Rates Rise Again, Is Your Business Ready?

By Greg Johnson

The accounts of a building-products wholesaler I advised said the business was profitable. The bank balance had other ideas.

Sales had held up, yet cash was becoming tighter each month. Loan repayments had increased, wages and imported product costs had risen, trade customers were taking longer to pay and too much money was sitting in slow-moving stock. Each issue was manageable on its own. Together, they had quietly removed most of the wholesaler’s financial breathing room.

That experience is a useful reminder for owners facing further interest-rate pressure. Predicting the next rate decision is a popular national pastime, but it is not a business strategy. The more useful question is whether your business can absorb another change if it comes.

Profit does not always mean available cash

The wholesaler began with a rolling cash flow forecast that included higher interest costs, slower customer payments and a more conservative sales assumption. This showed when pressure was likely to emerge and gave the owner time to respond.

We also looked at the cash trapped inside the business. Overdue accounts were followed up more consistently, slow-moving stock was reduced and supplier terms were reviewed. These were not glamorous changes, but they released cash without requiring the business to chase risky growth.

Review debt while you still have options

Many owners wait until finance becomes urgent before speaking with their lender. By then, the conversation is more difficult and the choices may be narrower.

Understand the rates, repayment terms, security arrangements and unused facilities connected with both the business and any personal assets. Test the effect of a further increase. Reliable financial information and early communication will usually put an owner in a stronger position than a last-minute request for help.

Protect margin, not just revenue

The owner had been reluctant to adjust prices because customers were also under pressure. Yet absorbing every increase was gradually weakening the business.

Rather than applying one broad price rise, he reviewed profitability by product, service and customer. Some prices changed. In other areas, purchasing, delivery frequency and service levels were adjusted. A small amount of unprofitable work was deliberately allowed to leave.

The lesson was simple: more sales do not create more value when the margin is insufficient.

Keep making considered decisions

Uncertainty can tempt owners to freeze every investment, growth or exit decision until conditions improve. It can also cause rushed cost-cutting that damages capability and customer service.

A better response is to test each major decision against several realistic scenarios. What happens if rates rise, remain unchanged or eventually fall? What return is required to justify the risk? What would delay cost the business?

Business owners cannot control interest rates. They can understand their exposure, protect cash flow and respond before pressure becomes urgent. That preparation preserves choices, which is exactly what a business needs in uncertain conditions.

If you would like an independent view of how current financial pressure could affect your growth or exit plans, I am available for a free and confidential conversation.