I have had and heard many conversations recently with clients, friends, family and extended networks on what the outlook is for New Zealand business, property, investment, employment and the consumer. Are we headed for another GFC? What are interest rates going to do? What if property prices fall and interest rates rise – will they rise? What are the political risks that Donald Trump and/or Brexit pose for International trade? Almost always, people ask these questions in a ‘general’ sense. Significant uncertainty or a negative outlook can often have the risk of causing inertia in making any decisions either personal or business related.
Let’s focus on economic and political risk effects on business.
Aside from the fact that the above questions do not have a right or wrong answer (other than in hindsight) and the many economic commentaries and professionals say different things – the immediate question that comes to mind is how would / should that change your behaviour when it comes to running your business?
Of course economic considerations are important, however, this should be in the context of what decisions you need to make in your business currently to give effect to your short, medium and long term goals. Some examples of these types of decisions are significant investment decisions, change of strategy, refinancing, or restructuring. The economic environment should be considered against other considerations (i.e. PESTLE – Political, Economic, Social, Technological, Legal and Environmental factors, or SWOT – Strengths, Weaknesses, Opportunities and Threats) and not in isolation.
The next step would be to consider the cost of not making the decision and evaluate this, and then what steps you can take to mitigate potential downside risk if any. There are many effects that can’t be mitigated, and if WWIII happens, everyone is in the crap unless you are an arms business. You can only control what you can control.
Say you were faced with a decision to buy a business or not. If nothing changes, what do you wish to achieve for yourself and/or your family. Now what are the current real risks of not achieving this? If it is an export business, economic risks relate to international trade, foreign exchange risk, and interest rate risk. Obviously these would need to be considered alongside other risk analysis using a tool such as PESTLE/SWOT. As part of the economic review, you would need to assess what the real economic risk is for the specific business (which countries are you exporting to, what are the current risks to foreign trade relations and how real/remote are they, how has foreign currency fluctuated over the last 10/20 years and what are the current pressures on this) and forecast expected downside risk, explore mitigation options and what ability you have to withstand downside risk.
Another example is if you are considering whether or not to invest in required capital expenditure. Not investing due to being distracted by economic or political uncertainty may becoming a self-fulfilling prophecy in any case. Investing after actively considering relevant risk may give you better chances of survival than not acting.
The point is, actively think about the costs of not acting,
not only the costs and risks of acting.
Whilst it is not always this simple and business decisions impact or have trade/offs with personal decisions and vice versa, it can be equally destructive to stop moving, or stop moving because you have not actively considered chance of real risk and balanced this against what the outcome of not acting is.
Keep moving forward. You can’t control what you can’t control. It is easy to get overwhelmed by uncertainty, but rather than applying energy to overthinking and not moving forward, apply that energy to assessing the potential impacts on the relevant areas of your business/life and keep trying to move forward. Get off the treadmill and go for a run. If you need assistance, find the help you require.
If you are interested in finding help with any of the issues addressed in this article, please contact the author Joshna Mistry.