Understanding how and preparing your business for the impact of inflation is a critical element of business planning that now more than ever needs to be addressed.
Interest rates rising are putting a strain on businesses across the country, as the costs for running these businesses rise in turn. Further spikes in inflation could provide additional challenges for businesses and their owners who are struggling to prepare for them.
With interest rates forecast to increase exponentially over the next year, here are some methods you can employ to address the risk inflation may pose to you.
Improve Productivity And Efficiency
Now is the time to review processes and output and look at ways to improve or streamline your operations, such as automation of processes including business software.
This could include
- Sales and marketing or
- Purchase orders
Strategically Cutting Costs
Review your current service providers and contracts such as telecommunications and internet providers, commercial property leases and service contracts, and compare the current market. You may find that there are better deals or options that allow you to minimise costs without impacting your business’s performance and options overly much.
However, be mindful not to cut marketing spending or communications capabilities which could cost you business in the long term.
Revisit Your Banking And Financial Products Needs
Look beyond your short-term needs and make sure that the interest rate on your business loans is competitive and weigh the benefits of variable and fixed rates.
Develop A Pricing Strategy
Rather than a price increase, look at ways you can leverage or bundle your existing goods and services.
If you are selling products, understand that there is a link between your client relationship and your pricing. Pricing too high all of a sudden could impact how your business is viewed by customers, but pricing too low will be detrimental to your business.
It could be cheaper for your business to offer a discount on upfront or prompt payments, rather than maintain an overdraft that accrues higher interest rates.
Consider Your Supply Chain
Overseas markets are volatile at the moment, so consider reducing risks by finding a domestic supplier which could also slash the costs of freight and storage. Create backup supply chains to mitigate the risk of having a ‘singular’ supply chain that could be impacted by market disruptions.
Review Your Workforce
The labour market is competitive, and you want to keep talented staff. Consider offering flexible work arrangements, offering nine-day fortnights rather than pay increases, and looking for training and development opportunities, particularly those that are subsidised by the government.
If an employee is not providing value to the business (such as working in a redundant position or failing to meet work expectations that are reasonable to expect from them), it may be better for the business to let them go.
Are you concerned about how inflation could impact your business? Speaking with a trusted business adviser (such as your accountant) may assuage some of those concerns, as they can provide you with a formulated plan that targets your business’s year ahead.