How to Steer Your Business Through an Inflationary Environment
How much longer will inflationary conditions last? 3 months? 9 months? Longer?
No one can say for sure, but all signs suggest inflation will not come to an end anytime soon. Entrepreneurs can’t do anything to bring it down. What they can do is adjust their strategy to these expensive and uncertain economic conditions for however long they last.
Here’s what we suggest:
- Raise Prices – Inflation justifies (and in many cases mandate) raising prices. The extra revenue helps cover higher costs, but be careful of raising prices so high that it alienates present or future customers.
- Cut Costs – This is a natural time to tighten the belt, and cost cutting measures can lessen the need to raise revenues to unrealistic levels. The risk is that cutting costs – by letting staff go or buying cheaper materials – will lead to a decline in products and services that will hurt the company over the long term. There’s a fine line to walk.
- Study Supply Chains – Inflation comes from supply chain disruptions, and it causes them too, so expect delayed deliveries and low levels of supplies to continue into the foreseeable future. One way to prepare is by studying your supply chain (both direct and indirect suppliers), and locating alternatives to give yourself options to manage costs.
- Examine Capital Structure – The company’s loans, debts, shares, and credit lines were probably not structured in an inflationary environment. They may need to be restructured and financial plans changed to account for different risks.
- Manage Morale – The hard realities of inflation can damage staff morale and cause an employee exodus – making a bad situation worse. It will be important to manage morale by communicating effectively, being transparent, offering flexibility with employees, and supplying meaningful incentives (bonuses, raises, benefits).
- Focus Efforts – An inflationary period requires extreme attention on current products and services that provide best economics for your business. Focus on those things that are essential to keeping the business going and growing. Everything else should be put on pause.
- Keep Investing – When money is tight, it’s tempting to make sweeping cuts to marketing, training, technology, or R&D. But it’s important not to suspend all investments in the future. Better to make small, strategic cut backs so that inflation doesn’t diminish the business any more than necessary.
- Monitor Geopolitics – Geopolitics always affects inflation, but especially now as the war in Ukraine continues. No one is immune to these conditions. The only way to stay ahead of them is by staying aware, so make a point to monitor situations and locations around the world that could further drive inflation or quickly alter expectations.
There isn’t much time to accomplish everything on the list above, and hefty consequences for getting any one aspect wrong. So get it right and get started fast – Prosser is your advisor in good times and bad. Contact us.
