As widely expected, the Reserve Bank lifted the official cash rate target by 25 basis points to 4.60 per cent on Tuesday 29 September. The Board said inflation remains elevated, some of the upside risks it flagged in August are materialising, and it is prepared to lift rates further if needed to bring inflation back to target.

Why small business feels it twice

Commentary on the decision points to a double squeeze. Your own borrowing costs can rise, through variable rate loans, overdrafts and equipment finance. At the same time, customers with mortgages or other debts have less to spend, which can soften sales. With little room to pass on higher costs, margins take the hit.

What to do this week

  • List every variable rate debt. Work out the extra monthly cost of another 0.25 per cent on each one, then check that your cash flow forecast covers it.
  • Talk to your lender early. Ask about fixing part of the debt, restructuring repayments or consolidating facilities before you are under pressure.
  • Review your pricing. If your costs have moved, check whether your prices still leave the margin you need. Small, well-communicated adjustments are easier than a big one later.
  • Tighten invoicing. Send invoices promptly, shorten payment terms where you can and follow up overdue accounts quickly. Cash in the bank matters more when money is dearer.
  • Put tax money aside. Your September quarter BAS is due on 28 October. Set aside GST and PAYG withholding as you go so the tax bill does not become a debt that attracts ATO interest.
  • Stress test your numbers. Ask what happens if sales fall 10 per cent and rates rise again. Knowing your break-even point tells you how much room you have.

Do not ignore the tax angle

Interest on business loans is generally deductible, so keep clear loan statements and make sure the borrowing really is used for business purposes. Mixed use loans need care, so keep records of how the money was used. Remember too that interest the ATO charges on overdue tax debts is not deductible, which is another reason to keep your tax payments current.

The RBA has been clear that more increases are possible, so build a buffer now rather than waiting. A short conversation with your accountant and lender this month can make the next few quarters much easier to manage.

This article is general information only and does not take your circumstances into account. Speak to your accountant or financial adviser before making decisions.