Budget 2013 will leave all sectors of society reeling and feeling the pain for some time to come. Ray Kinsella offers a primer on what we can expect and how we can cope
THERE is a lot of Budget Day fever heading your way. Here are some suggestions about how to manage the biggest business migraine of the year.
Don’t be distracted by the forecasts. They have to be done but they are nearly always wrong. Much better to have a look (see below) at the key ones, and then benchmark them against your own sense of what’s happening on the street. The best forecaster I know is a good friend who runs a high-quality family shoe business in the West of Ireland.
The budget will impact on businesses — large and small — at three levels: The kitchen; the boardroom (for small and micro businesses, this means any room that’s available); and the country.
Start with the kitchen and, so far as you feel you can, put the country to one side. We have all been worrying about the country for the last four years. Nobody is listening (and that includes Angela Merkel) and all the worrying done hasn’t done much good.
So, to the kitchen. In the national accounts, “households” make up a big part of “domestic demand”, which has gone through the floor. At the heart of households are kitchens. Every single budget measure will wash through your kitchen and the kitchens of your customers and staff. The issue is this — what impact will the budget have on disposable incomes/transfer payments that flow into the kitchen and what effect will the demands around the kitchen table have on this income. Utilities. Energy. Taxation. School and third-level fees and those kinds of things.
One way or another, your customers and staff will be doing the exact same in their kitchen.
The net effect of these decisions will help determine “expectations”, and “business sentiment”. And these, in turn, will shape the decisions that your customers will make about how much their going to spend and whether, or not, they’re going to invest. That covers the boardroom bit as well.
Remember, the kitchen and the boardroom are connected umbilically. Remember also that it is in the kitchen, rather than the local school hall, that families decide how they’re going to vote.
This budget will increase the costs of business. This is already happening as a result of cost increases in recent months. It is the last kind of pressure that should be impacting on Irish business. But that is where the “adjustment” is at.
So, if you are in business start with the assumption your company has already done all that it possibly can about reducing the cost burden. Then revise that assumption. You’re not doing all that you are going to have to do to absorb budget day increases in costs and overheads.
One thing you can be certain of is this; if you take €3.5bn out of an economy that is running on empty, it is going to impact on your customers. Some will go out of business. Many of your customers will be spending less.
The advice in every business text book is to “stay close to your customer”. This is widely regarded as a platitude. That is only because it is true — and has been born out of hard experience.
What is also true is that most businesses stop being attentive to their customers at some stage. Successful businesses are successful because they have understood this, got back on the road and re-engaged with customers.
A few years ago, some colleagues and I wrote a book on “fast grow firms” and how these businesses differed from “trundlers” in the same sector and of roughly the same age. One key difference was that fast growers knew everything not only about their customers, but equally important, who their competitors were for these same customers.
The budget is a good time to think again about your customers. Their Budget Day woes are your problem. The costs of losing a customer — whether they’ve been forced out of business or because they switched to a lower-cost competitor — are enormous. Your post-Budget Day “customer retention strategy” is a priority.
New Services/Better Ways
Budgets are a mighty incentive to rethink your business. The last four years have led to the loss of many good businesses. Those who are (so far) still there, and especially those who are doing well, are genetically adapted to cope with what’s coming down the line this Budget Day and next. It is worth looking at those who are doing well — and asking what they are doing right.
Many businesses find it difficult to let go, unless somebody in Berlin or Brussels is making the decision for them. For domestic businesses, one of the problems is that they have already invested so much in the last couple of years in keeping the show on the road — time, energy, ideas, worry and, also, equity. This is what I call “stress equity” I have suggested many times in these pages that there should have been hand to hand fighting to ensure such businesses survived. The problem is that many in the country simply do not understand, or respect, the fact that stress equity invested by businesses puts bread on the table.
So much could be done. There are very sensible ideas in some of the pre-budget submissions and some the party political strategies. But the troika is not listening.
So businesses have to take one of three decisions. Firstly, whether to let go. Business starts again today, on Budget Day. The key point here is to talk to customers and staff before letting go. Staff will have some good ideas. No business wants to let people go and nobody wants to be let go.
This leads to the second point, which is what to do differently in the aftermath of the budget, ie, what to do better or more competitively. Again, a key point is to talk to staff and customers.
The third option is to expand. It is what the economy desperately needs. If the Government wants a domestic economy it has to be made a lot easier for businesses.
Set aside a budget briefing or reflection day.
Do it within one week of the budget. Leave it any longer and it’s not going to happen. Next collect all the relevant material. There is very good background analysis on the Department of Finance website. Collect the budget supplements. Have a look at the analysis of the big accountancy and consultancy firms, as well as those published by banks and brokers.
Next, sit down with strong coffee and ruthlessly select the material that impacts on your business and on your customers.
Finally, send round an injunction that this material must be read and pondered over.
Then set aside half a day. No mobiles. Lock the doors and let no one out until you distil the material into not more than four of five action points. Locking the doors worked for the Spanish and Italians earlier this year in getting eurozone funding for their banks. That wasn’t easy so it’s a good precedent. Their Budget Day woes are your problem.
Speaking of banks, when you have done all the above, call your bank manager and make an appointment to see him/her. Say what your business needs to do in the light of the budget and the kind of support you need. Bank managers are mostly very decent and very knowledgeable men and women who would be even more decent if they were let. They know a lot about yourself and your customers and what’s happening.
Just like your kitchen, an awful lot of knowledge and life experience has flowed through their branch. Use it.
* Ray Kinsella is on the faculty of the UCD Michael Smurfit Business School
* RELATED STORIES:
* RELATED ANALYSIS: Something’s rotten in State of Ireland: The Coalition and its regressive budget
© Irish Examiner Ltd. All rights reserved