Mark Korda and Mark Mentha recently spoke with James Thomson at the Australian Financial Review, sharing their insights into the risks many small to medium enterprise businesses (SMEs) face following the latest period of economic upheaval.
Despite historically low interest rates, soaring house prices mean any interest rate rises cause a sharp increase to the average mortgage payment, and pressure on budgets affects the economy. "There's a lot of hurt that happens there. It happens with corporates, but it's probably the SME [small-to-medium enterprise] space that gets hit the most, because it's about their ability to actually pass on higher costs," said Mark Mentha. He further highlighted the complicating factor of rising ATO debt, "Like our kids use the 'bank of mum and dad', SMEs have used the ATO as their cash flow bank. That's a big issue."
Mark Korda discussed the potential for resilience where businesses can pivot. Support mechanisms, such as government stimulus packages and lender/landlord moratoriums, prevented the anticipated wave of insolvencies during the pandemic. As a result, he highlighted how KordaMentha instead, ". transferred really skilled insolvency people into the M&A business. Who would have picked that?"
While Mark Mentha noted there is a buffer zone before pain is significantly felt through the economy, it is a warning sign to pay attention and plan ahead.
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