Opportunities there, proceed with caution

IT was painful to watch the last 41 mins of the State of Origin. Queensland was just holding on. While NSW executed an almost flawless plan that capitalised on opportunities. They had done their homework. While many will say business is tough at present, there are opportunities.

It is not all doom and gloom. May’s respected NAB Business Confidence Survey showed a significant increase in business confidence. Stronger growth in the Europe and the US economies is one factor contributing to this. Another factor is that we are seen as an increasingly safe place for overseas investment and tourism.

Senior economist Michael Workman also gave reason for optimism in his presentation at a local Australian Institute of Company Directors breakfast last week. Michael talked about the business areas that had the greatest opportunity for growth. These areas were: Residential construction, alterations and additions; tourism from domestic and overseas travellers and hotels as a consequence; Infrastructure - roads, rail, water, power utilities - related construction, engineering and services and especially with the large commitment in the budget to infrastructure, such as the inland rail project in our area; Retail - hardware, and one I love - cafes; Mining production for low cost coal; LNG exports; New car sales.

The growth is not just in the above industries but with those businesses that service or supply to these industries. If your business is not involved in any of the above, there may be ways your skills or products or services could be adapted to service them. Importantly such an adaption would need to maintain a competitive advantage.

Where there are opportunities there are risks. This was clearly seen in our region when the energy construction phase ended a few years ago. When it finished many businesses that were doing satisfactorily before the boom failed after the boom finished.

I’ve seen first hand the failing businesses through my mentoring work with the State Government. One of the reasons for the failure is to put everything into the new opportunity and not keep the existing business strong. This is easier said than done, as the new opportunities are often demanding and your resources are spread thin. Without a plan, your overall business is at risk.

A new opportunity will suck cash from you, particularly in the early stages. Robust and conservative cash flow projections should be made for the new opportunity. This will help determine what can be funded internally and what external funding may be required.

Additional funding should provide a good return on investment and be easily serviced from the cash flow. In addition warning bells should sound if the additional debt places you in an overall weak debt-to-equity position. And even louder warning bells should sound if the new borrowing maxes out your borrowing capacity.

Some questions to ask yourself: Where are the opportunities for growth for your business? Before you commit to a new opportunity what steps do you take to mitigate the risk? Do you have robust budgets/cash flows projections in place?

For those that are looking, there are opportunities to grow your business. When you find the opportunity, ensure you maximise the benefit and minimise the risk.