Small businesses will need to observe the effects interest rate rises have on your business. Their effects could change the way in which you do business, especially in the finance department. The following guide will highlight the most likely areas that interest rate rises will affect your business.
Increases in interest rates affect how small businesses finance their activities. This means that you will pay more for your business loan. It could well spell trouble for your sales and profits as consumers spend less as their borrowing habits become more reserved. Planning your small businesses finances up front will allow you to decide how much you should rely on loans in the near future.
Cash Flow and Forecasting
Cash flow forecasting gives your small business the advantage of knowing what money will be coming in and what money will be going out, in advance. With the rise in interest rates, any money to be paid on the loan will increase hence decreasing your available cash flow. Thus, higher interest rates must be factored into your cash flow forecast to ensure that you have enough money to pay for all your expenses.
Business Growth Strategy
There are several factors to consider if you decide to follow a business growth strategy. Firstly, it is advised to use any business saving to fund business growth. Secondly, any borrowing plans should be put on hold until you gauge the effects the increase in interest rates has on your customers spending habits. Finally, to help your business grow, lower your prices on goods/services if demand decreases. This will ensure that you stay competitive and could increase your sales.
Fixed Rate Loans
Fixed rate loans are the best alternative to take while interest rates increase. Your small business will be able to take a loan out and will not be charged with an increase in interest as interest rates rise.