Five Tips to Fight Inflation

Inflation is challenging to manage as the cost of parts, labour and other business inputs continue to rise. At worst, these pressures can bankrupt a company or employer, as seen recently in the building sector with its rapidly rising costs. However, looking back at past inflationary periods, some businesses have actually reported increased profits. This should be your goal. Here are five tips to help you weather the storm and keep your business healthy and profitable.

Analyse the Impact of Inflation on Your Business

Inflation can impact your business in several ways. As mentioned previously, rising costs are the most obvious risk – but not the only one.

• Rising input costs may force you to advance purchase more stock to beat future price rises, which can hurt cashflow. As we all know, good cashflow management can keep a struggling business afloat, while poor cashflow management can sink a profitable business.

• If you have outstanding debt, it may become more difficult to repay as interest rates rise with inflation.

• Inflation can also cause sales to decrease as prices rise and people have less discretionary income. If you don’t have access to historical data, speak with an MTA member who has been through the cycle previously. Adjust the numbers in your forward forecasts and see how you might be affected under different demand scenarios.

• Price increases will be one of the tools you can use to offset costs, but how price sensitive are your customers? This also needs to be factored into forward projections.

Monitor Your Expenses and Cut Costs Where Possible

Knowing exactly what is happening with your fixed and variable outflows is critical to staying in control of inflation, rather than falling victim to it.

Rising costs can sneak up on you, as they have a cumulative effect. They erode profits, but counter measures can be taken to retain your margins. Here are a few ideas:

• Get tough on waste and drive it down

• Look for ways to improve efficiency and be open to new ideas from your staff

• Consider changing suppliers

• Renegotiate your fixed expenses

• If your cash position is strong, seek discounts for early payments

• Streamline your business processes to reduce costs.

Adjust Your Pricing

As a general rule, customers are far more accepting of price rises during inflationary periods. They don’t like it – but they understand it.

If you haven’t reviewed your pricing for some time, now is the time. You may find that your margins have already been slipping and by carefully increasing prices, you actually become more profitable.

It can be a difficult balancing act; trying to remain competitive while also staying profitable.

If you have a fixed-price contract, you may want to consider renegotiating it to reflect new costs or pricing structure.

Streamline Your Business Processes

In the current post-Covid environment where there are still supply constraints throughout the economy, inflation may be coupled with longer wait times for deliveries, more expensive transportation, and other challenges. To avoid unnecessary delays and costs, it would be beneficial to streamline your business processes.

There is also merit in simplifying the business processes you can control. Done correctly, removing complexity can help improve efficiency and reduce costs without hurting quality. Optimise your supply chain and consider using more efficient transportation methods, such as consolidating shipments. You may also need to improve your inventory management system to reduce the cost of carrying inventory.

Take Advantage of Technology

As inflation increases, you should work smarter to take advantage of technology that will improve efficiency and save money. Tech projects are not without pain – but inflation provides the motivation to push them through. An example would be software to automate your billing and reconcilement process, or other areas, such as business intelligence tools to better forecast sales and manage inventory.

Finally, maximise the tech you already have. As an example, make the most of your Customer Relationship Management (CRM) system to improve customer engagement. CRM updates today are invariably focused on automating steps in the marketing and sales funnel, and automating communications across fragmented user groups. You might be able to use profiling tools on your CRM to identify clients that are the least likely to reduce spending when prices rise and target campaigns to this group.