10 Strategies To Tackle High Inflation In Your Business
As a business owner, you need to be prepared for anything- including high inflation. As we grapple with the aftermath of the pandemic, business owners globally are feeling the effects of inflation, and Australian business owners are no different. Australia is currently experiencing 6.1% inflation (for June Quarter 2022), the fastest annual increase seen in over 20 years, with markets forecasting this will rise again in the September Quarter. Supply-chain disruptions due to COVID-19 and rising oil and commodity prices are all drivers of inflation, in addition to low-interest rates, which encourage more spending. To combat the high inflation, the RBA has started to tighten monetary policy, increasing the official cash rate. As a business owner, you can’t control the inflation rate, but you can control how your business responds.
What impact does high inflation have on business?
Inflation can have many impacts on businesses, large and small. When the cost of goods and services increases, it can eat into your profits, making it harder to grow your business or even maintain your current level of operation. High inflation can also lead to wage pressures as employees demand higher salaries to keep up with the cost of living. As inflation rises and the RBA cash rate increase, as does the cost of borrowing, making it more expensive to finance growth or expand your business. The consequences of high inflation and increased interest rates can also impact consumer confidence, decreasing demand for your products or services.
So, what does this mean for businesses? How can you manage high inflation and protect your business? Here are 10 strategies to consider:
- Review your pricing strategy regularly
To stay ahead of inflation, you need to review your prices regularly. If the market allows, increase your prices in line with inflation to ensure that your prices keep up with the rising cost of living. If you cannot raise prices, look at ways to improve your margins. For example, you could review your product mix and focus on selling higher-margin products.
- Review your supplier contracts
Regularly review your supplier contracts and make sure that you’re getting the best possible price for the goods and services you need. If your suppliers are putting their prices up, look for ways to negotiate a better deal. For example, you could bulk buy or look for alternative suppliers.
- Review your overhead costs
Inflation will also impact your overhead costs, such as rent and utilities. If you’re able, renegotiate your leases to ensure you’re not paying more than you need to. You should also review your energy usage and look for ways to reduce your consumption, which will help offset some of the increased costs.
- Diversify supply chains
Don’t put all your eggs in one basket. Diversifying your supply chains will help to protect your business from inflationary pressures. If you source your goods overseas, consider sourcing from multiple countries to spread the risk or look for domestic alternatives. If one supplier becomes too expensive, you can switch to another, which may be able to offer better value. Setting up multiple supply chains may cost more, but it will be worth it in the long run.
- Stockpile key materials
If you know inflation is on the horizon, it may be worth stockpiling key materials with low holding costs to help insulate your business from future price shocks.
- Commodity Hedging
If you use commodities in your business, you may want to consider commodity hedging. Commodity hedging is where you enter a contract to buy or sell a commodity at a set price in the future, which can help protect your business from price changes.
- Improve your cash flow management
Inflation can significantly impact your cash flow, so it’s vital to have a good cash flow management strategy in place. This could involve things like getting your invoices paid sooner or holding more money in the reserve to cover unexpected costs and bide your time until you can recover the cost in the price of your product.
- Increase productivity
One way to combat the effects of inflation is to increase productivity. Investing in new technologies or processes can help to boost efficiency and productivity. An increase in productivity can go a long way to offset the effects of inflation by selling more products or services and reducing costs while maintaining the selling price.
- Reduce waste
Inflation can also be combated by reducing waste, including things like waste of materials, energy, or time. By reducing waste, you’ll be able to improve your bottom line and better withstand inflationary pressures.
- Outsource non-essential tasks
If there are tasks that your business can outsource, now is the time to do it. Outsourcing will help you to free up resources that can be better used elsewhere. Outsourcing is a great way to improve efficiency, reduce costs, and offer flexibility.
Outsourcing is an easy and cost-effective way to remove the burden of specific tasks from your business and can free up your time so that you can focus on other aspects of your business. It also has the advantage of being less expensive and more flexible than hiring in-house employees because you only pay for the services you need and can readily scale as your business grows. If you realise outsourcing is the best option for you, contact us now!
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