How can businesses protect themselves from rising inflation?
By Mr Bankruptcy
21st August 2023
Everyone is keeping a close eye on inflation figures at the moment to see how it will affect their lives, families and businesses. While the signs are that the rate of inflation is beginning to drop, it still means that prices are increasing, albeit at a slower rate.
Here is the James Rosa guide to some key steps that you can take to protect your business from the affects of high inflation.
How does inflation affect businesses?
High inflation is very challenging for businesses as increasing costs affect them across all areas of operation. This means business owners must be mindful of higher production and labour costs, price rises throughout the supply chain that cut into margins, and pressures on consumer spending which can all reduce revenue; and then there’s higher borrowing costs.
These examples alone demonstrate how businesses owners need to take time out to reflect on how they are operating and look for adjustments to minimise or negate the affects of inflation.
7 ways to protect your business from inflation
While the impact of inflation can affect all businesses, the most effective way for an individual business to manage these challenges will vary depending on their specific circumstances. But for all business owners, here are some key general ways to protect your business:
- Understand your costs: Knowing your fixed and variable costs will give you clarity on current margins, what can be achieved and what needs protecting, identifying your most profitable and not so profitable goods and services.
- Consider adjusting pricing: This can be a tough call to make as no-one wants to risk alienating customers, but increasing prices to reflect the increased costs faced by your business may be a necessity. If managed thoughtfully and clearly communicated, it doesn’t have to mean that you will lose customers.
- Cutting costs: If you are able to cut costs in some areas to balance increases in others, it may be possible to avoid increased charges to customers.
- Improve operational efficiency: Look at changes that can be made to processes, tools and productivity to improve cost-effectiveness.
- Consider how you borrow: Rising inflation usually means banks upping their interest rates, which means borrowing becomes more expensive. Your loans may start to become unaffordable, with incurred costs for late payments. You need to review your borrowing ad ensure you only borrow when necessary.
- Manage cashflow: Keeping money coming into the business on time will be increasingly important to ensure your business survives rising costs.
- Make a plan: Track financial and market trends, working with scenarios and how they may affect you so that you can identify potential weaknesses, dangers and opportunities.
Business have faced a lot of challenges over the past couple of years, but many have demonstrated resilience and an ability to adapt. Inflation is just one more challenge that can be overcome through effective planning.
James Rosa Associates
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Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.