Money Matters Investment & Finance The impact of the financial crisis
The impact of the financial crisis
Sunday, 01 February 2009
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The financial crisis that sent shockwaves through global markets in 2008 is the harbinger of a recession that could derail the WA economy in two to three years, according to leading financial analysts Access Economics. The company's director Chris Richardson has forecast that by 2011, despite the WA economy's recent boom years, unemployment will double to 74,000 (5.8%) and the state's revenue will drop by 12%. The health sector has generally resisted the instability of other industries during downturns, but in such uncertain times, Medical Forum turned to leading health industry financial specialists for advice on how hard the crunch will get for you and your practice.

Richard Curia, Finance Consultant at Experien Medical Finance's WA office, believed "business will be challenging through 2009" and that it was difficult to forecast just how long the economic downturn will last.

Callum Davidson, Medfin Finance's CEO, felt it was too soon for optimism. "The Reserve Bank is forecasting a recovery in growth in 2010. Given how quickly the outlook has deteriorated and the fact that most of the news is causing expectations to be revised down, it is possible that the slowdown may be more protracted than people are anticipating at this stage," he said.

Both agreed that the health sector was buffered against drastic losses, but they warned doctors to stay flexible in case some income streams dried up.

"When people are in need of medical services, they can rarely afford to wait, plus many people carry insurance to assist with these expenses, and the Medicare safety net is designed to assist people with these expenses. One would expect that some practitioners for cosmetic and optional procedures might see their waiting lists shrink a little but they are often able to re-allocate their time into areas of ongoing demand," Richard said.

Callum added, "Areas of the industry with exposure to retail spending may see the slowdown in discretionary spending impact their retail profit centre."

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Callum Davidson

Depending on your specialty, it is not all doom and gloom financially. In fact, Richard found that "some people we talk to even think that economic downturns improve demand for the health sector as people are generally more prone to illness!"

Callum believed that all business owners and practice managers should be reviewing their personal and business positions right now.

"Look at the downside and make sure you have plans to cope with a slowdown. Balance this assessment and take some time to consider the investment/growth opportunities that may be available in the current environment," he said.

"Carefully monitor cash flow and ensure lending facilities are structured correctly in order to maximise tax effectiveness. However, at the same time, be careful not to trim the budget on essential operating items such as equipment and technology, which generate cash flow and are essential for your business. Unfortunately, it might be one of those times where the overseas holiday needs to give way to the new coloscope!" Richard said.

Because most medical equipment is imported, both our experts agreed that the biggest impact on the price of equipment this year will be exchange rates. With the Australian dollar plummeting from nearly $1US to around $0.63US at its nadir, choosing the right time to buy could dramatically affect the price.

"It's all very well to hold off on purchases hoping the exchange rate will improve, but what if it doesn't? Also, what if interest rates go up while you are waiting for the exchange rate to improve? In relation to available equipment, there are some good deals out there, particularly as suppliers try to move some unsold stock. The most sensible thing to do is to assess the purchase on business principles given what you know at the time, rather than speculating about what might happen," Richard said.

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Richard Curia

"It is worthwhile remembering that for cash flow and taxation reasons, most equipment is financed. So while exchange rate movements are putting upward pressure on equipment costs, this is being offset by falling interest rates which, in turn, reduce finance costs," Callum said.

Uncertainty over interest rates will also affect property investment, but given the drop in interest rates, it may be a good time to consider purchasing a new practice or investing in property if all your financial ducks are in a row.

"Most interest rate commentators are predicting further cuts in interest rates by the Reserve Bank. NAB economists are currently forecasting another 1.25% reduction in rates in February/March." Callum said, adding, "Only hindsight will reveal what was the best time to purchase a property."

Richard agreed, "Property prices in WA have dropped significantly. There is a lot of property stock available allowing for solid price negotiations to take place. Variable rates are low and there is a feeling that this may drop even more. Preparing oneself now for the next property upswing can be beneficial. With interest rates on property loans hitting the 5-6% range again, many of our clients are finding their investment properties are becoming neutrally or even positively geared! Once again, its best to make a decision on what you know at the time rather than trying to use a crystal ball to predict the future - trying to find the lowest point of the property or share market is extremely difficult."

 

 

Ed. The opinions expressed in this article are not intended as financial advice. Consult your financial adviser for specific guidance relevant to your financial circumstances.