Every day in the news you can read about inflation fears: supply shortages, price increases, stock prices tumbling and it is not isolated to Canada, this is a global issue.
The latest Statistics Canada data for April 2022 shows the official inflation rate at 6.8% year over year which is the highest since January of 1991. Statistics Canada noted that the cost of living crept higher because of the war in Ukraine, and ongoing supply chain issues. These are just a few of the factors that have pushed prices up. As a result, businesses of all sizes are fighting against inflation pressures for the first time, or at least the first time in a generation.
If you haven’t already, you should be taking steps to ensure your business is ready to weather inflation.
In this article, we will demonstrate how to safeguard your company against inflation by implementing strategies that are designed to prepare you for rapidly shifting market conditions and help you stay ahead.
What is inflation? Inflation is when prices for goods and services rise and purchasing power falls. When inflation goes up, people and businesses have to spend more money to buy the same amount of goods and services. Put simply, everything becomes more expensive.
Four Strategies to Manage Inflation For Your Business
Inflation impacts businesses differently and in various ways. It is possible that the higher costs have not impacted your bottom line yet, but it is still important to know how to safeguard your business against inflation with help of these strategies.
1. Adjust Pricing and Be Lean Where You Can
With the costs of goods and services increasing businesses have the choice to either raise prices or decrease the profit margin. All businesses will eventually need to pass on some of the costs to their clients. If your business has been able to foster customer loyalty, a modest increase in prices won’t likely result in losing clients. If you are not inclined to raise prices for your customers, you may be able to work on a leaner budget in-house. The best way to accomplish this is to have a better view of company-wide spending. Review where you spend the most money. Examine all financial data and utilize it to assist your team in making informed decisions. This will assist your business not just now, but also in the future.
2. Opt For Long-Term Fixed Price Agreements
Review your contracts and try to lock in long-term fixed-price agreements. While it may be expensive at first, doing so will protect you against future inflation increases. An annual contract is preferred by most suppliers since it offers them consistent cash flow. Make careful to plan ahead of time and lock in rates for items you know you’ll need in the near future.
3. Time to Invest In Your Business
It may seem counterintuitive but if you anticipate the inflation rate is continuing to rise, it may make sense to make that large investment now before the prices rise more. This could be investing in a new ERP system, optimize your software, machinery, land, or any other major asset that is critical to your company’s success. You should also consider buying your supplies in bulk, especially when renegotiating contracts with your suppliers, it may help you secure a discount.
4. Stay Ahead with “What-If’s” Planning
Use your financial software to forecast scenarios and to have a mini stress test to see how your business would fair if that what-if became a reality. To get started identify the current inflation trends within your industry and from those forecast ways it can impact your bottom line. A few areas you could test are:
- Shortage of parts or materials
- Delays in shipping or the supply-chain
- Labour shortages or ballooning labour costs
- Reduction in sales
With a plan in place, you are set to have more peace of mind that you can weather this bout of inflation. Benjamin Franklin said it best “If you fail to plan, you are planning to fail!”
We have shown you five strategies for how to help your business from the effects of inflation. Nobody knows for sure what will happen as we continue in 2022. The best things you can do are know your business financials, be up to date with the latest data and ensure you’re using software to maximize efficiency. If you need any assistance with your financial software we are ready to help you.