Risk mitigation, Restructuring
Navigating Economic Challenges
In the August 2024 Monthly Economic Review, the economic landscape presents a mix of cautious optimism and ongoing challenges. The Reserve Bank reduced the Official Cash Rate (OCR) by 25 basis points to 5.25% on 14 August 2024. A move that was predicted by commentators despite earlier comments from the Reserve Bank Governor about a potential rate rise. The lowering of the cash rate has been interpreted as showing inflation has been tamed and is tracking to return to the 1 – 3% band. Further rate reductions are expected this year.
The surveys that show a lift in business confidence are heartening. However, the past two years have put significant pressure on many businesses and clients I speak with predict a period of at least another six months of tough economic conditions ahead.
Because the resilience of many businesses has been tested, the reserves of funds and energy are low, it is important that businesses look closely at staffing levels and overheads to see if further efficiencies can be made while ensuring the business is positioned to take advantage of improvements in the economy when they are realised.
Risk mitigation, Restructuring
Restructuring is one of the tools to ensure businesses manage through these challenging economic times.
Having worked with employers to restructure their businesses for over 25 years there are some questions which are useful to evaluate whether a restructure would be of value to your business:
If work volumes have dropped what is the impact on revenue, cashflow, profit?
What is your productivity rate and is it at an acceptable level?
Can you rationalise parts of your business to create efficiencies?
Are there services or products that are no longer aligned to the market?
Is resistance to price increases diminishing your profit?
Where you are using technology/AI in your business, have you evaluated the impact on employee positions?
Are you as a business owner taking the hit for the drop in demand by reducing your income? If so how long is this sustainable and is there a plan to recover that income when times improve?
If you are investing in new services or products what level of investment are you prepared to make and how much time will you allow to grow a product or service?
If you were to start with a blank sheet of paper what would your organisational structure look like?
These questions are by no means exhaustive, but they can help to analyse the need for change.
A few other pointers:
If you are considering a restructure, take into account the financial implications of notice periods and holiday pay liabilities
Beware of delay – unfortunately the on going impact of recessionary conditions or minimal growth is dangerous for the financial health of a business – I have seen situations where employers delay taking action and problems are compounded
Restructuring processes are prescriptive and require a sound understanding of the required process and the relevant case law. The last thing any employer needs is a personal grievance for unjustified dismissal because the process has not been well managed, or the substance is questionable.
Contact us for assistance in this highly prescriptive area – 09 377 9891 or email us
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