With yesterday’s rate rise, the cash rate is back at a level we last saw in 2008. Of all the things we could have brought back, we chose expensive borrowing. Would have been nice to get the house prices from back then as well but we are only bringing back the part where you pay more.
Back in 2008, Sachin Tendulkar overtook Brian Lara to become Test cricket’s highest run scorer. We watched in admiration as he passed 12,000 runs against Australia. These days, we would be equally impressed by someone who can pay the mortgage, buy groceries, fill up the car and still have money left for other activities.
Back then, Apple’s App Store had just launched with 500 apps. Now we have that many passwords and checking our own bank balance requires a code sent to another device, a facial scan and proof we are not a robot. After all that effort, you would hope there was more money in there.
Back then, you rented a DVD and paid a late fee if you forgot to return it. Now you subscribe to six streaming services and pay every month for forgetting you have them. We have turned an occasional mistake into a recurring expense. As an accountant, I admire the business model. As the person paying, somewhat less.
A lot has changed since 2008 but the business question remains the same: how much is actually left after everyone has been paid? Higher interest costs make the answer a little less forgiving. More sales might help, although taking on extra work without checking the margin is a rather tiring way to discover they did not.
The biggest customer is not automatically the most profitable, especially after the extra phone calls, changes and generous interpretation of payment terms. Before chasing more sales, check what is left from the ones you already have. Sometimes the best result comes from doing more of the right work rather than simply doing more.
We have much better tools for seeing all this than we did in 2008 and the trick is to open the reports occasionally, preferably before you need a payment plan for the money that you should already have set aside.
A short monthly review of profit, cash coming in and bills coming due will not change the RBA’s decision. It can, however, leave you with a few more decisions of your own. After all, the bank has already worked out how to make more money from your business. Worth checking that you have too.