The demonstration of the high-tech industry against the reform.
The protest in Israel gets most of the attention, but even without it we are in the days of economic uncertainty (Photo: Yanon Shalom Yathach)
Outside, a financial storm is raging unhindered, both global and local: interest rates are rising, inflation is rising, volatility in exchange rates is intensifying, and uncertainty in the markets is increasing.
While everyone is busy with the legal reform - the economy, naturally, is neglected and damaged.
The measures to reduce the cost of living that were planned to be included in the government budget for 2023 are being postponed, the purchasing power of households is eroding, and the condition of the business sector, which is the pillar of the Israeli economy, is deteriorating day by day, because it is between a rock and a hard place.
What are the main reasons for this and what can the business sector do to help itself, before its economic immune system and that of the entire Israeli economy collapses?
So let's start with
the continuous increase in interest rates
, on February 23, 2023 the prime rate rose to a historic level (for the lifetime of this generation) of 5.75%.
The fateful consequences of this event on the business sector are clear.
The rising cost of credit creates a flow burden and an erosion in profitability - they have long been no easy hit in the wing, especially not in leveraged businesses, whose working capital needs are high, importers, where payments to suppliers arrive long before receipts from customers.
Small and medium-sized businesses even before paid much more expensive prices for credit and find themselves today with double-digit interest rates in some cases that simply do not allow them to raise their heads above the red line of the credit limit.
If you add to this the fact that many banks have unilaterally reduced the frameworks for many businesses, then you get an even bleaker picture.
Mark Twain once said: "Banks give you an umbrella on a sunny day and take it back as soon as it starts to rain."
And what can the business sector do about it?
To bring the medicine to Mecca early - this is the time when the business sector must make an urgent/panic reorganization of all its types of obligations, consolidate loans, conduct tough and uncompromising negotiations with the banks on interest rates, fees and linkages, avoid loans at prime + (since it does not appear that the trend of increasing the prime interest rate is weakening), increase collateral, generate reserves, develop alternative funding sources (such as changing payment terms to suppliers and collection dates from customers) and carry out operational efficiency measures including a constant reduction of operational costs.
In some cases, you should even consider postponing purchases and transactions, reducing personnel or freezing personnel recruitment processes.
It is true that these moves involve other considerations and making difficult decisions, but it is important to remember that sometimes procrastination in making these business moves can create a loss of momentum and make it difficult to maintain stability down the road.
Therefore, it is important to consider the alternatives and act without delay in cases where the bleeding is obvious and dressing as quickly as possible can reduce significant damage.
The Governor of the Bank of Israel raises interest rates for the eighth time - and inflation is not curbed (Photo: Photo processing, Flash 90, Yonatan Zindel)
High inflation rates
Inflation rates in 2022 stood at 5.3% and in 2023 the trend continues, despite 8 consecutive increases in prime interest rates.
The reasons for this are many: the Russia-Ukraine war, the energy and commodity crisis, disruptions in the production and supply chain, and more.
The consequences of inflation do not miss any branch of the economy and the increase in the price of inputs, which do not respond to it in time, creates an erosion in the profits of businesses that, if they do not respond in time, may find themselves financing the losses with too expensive credit and with no real ability to repay.
so what are we doing?
In the short term - updating the price lists and increasing the prices, so that they reflect the increase in the prices of the inputs and preserve the gross and operational profitability that can enable the continued existence of the businesses.
An alternative way can be diversification in the offer of the products and services.
In the medium and long term - the business models on which the business activity is based are re-examined and immediate changes are made in the parts that rely on elements that have changed from end to end in recent months.
In some cases, this means completely stopping the work in the current format, because it simply causes immediate losses or damage to the flow that can no longer be financed at all.
More in Walla!
A short visit to the pool changed my life - and you can too
Served on behalf of TI SWIM
The dollar is getting stronger, the shekel is getting weaker, what can be done? (Photo: Reuven Castro)
Volatility of the exchange rates, strengthening of the dollar and devaluation of the shekel
The political and social instability in Israel and the debate surrounding the legal reform of Prime Minister Netanyahu and Minister of Justice Levin causes the volatility of exchange rates and the strengthening of the dollar and the depreciation of the shekel, which in the last week of February resulted in an exchange rate of 3.69 shekels to the dollar - the record of the last 3 years and there the trend continues more and more Authorities spend money abroad.
So what to do?
Importers who are expected to pay in foreign currency, now more than ever need to examine the possibility of hedging their financial activities.
The start-up companies that raised funds should hold them in foreign currency.
Established companies that have accumulated surpluses and until today have held the majority in shekels in current accounts or in other shekel investments, should consider these days to add more diversification in their types of investments, to generate more exposure to foreign exchange, global markets and so'.
So it is true that there is no guarantee that the implementation of all these moves will leave the business sector unscathed, but the more businesses are able to implement the moves mentioned above at an earlier stage, the easier it will be for them to deal with the financial storm outside and maintain financial equilibrium and business stability.
The author, CPA Yulia Levy (Photo: Assaf Spector)
The author is Yulia Levy, CPA in Israel and the USA.
Owner and CEO of Final Financial Control and has 18 years of experience in finance and financial management, controls and risks.
Of money
consumption
financial decisions
Tags
interest
inflation
dollar rate
