With rising inflation worldwide, businesses must stay informed on how to combat inflation to prevent declining profit margins as the cost of goods and services increases. Whether you are a small business owner or the CEO of a large corporation, having the right accounting, tax, and financial strategies can help you navigate the challenges of inflation and emerge stronger than your competition.
Nearly everyone has felt the effects of record-breaking inflation for the past few year. While dealing with higher grocery prices to steep energy costs, many people have wondered how to make their paychecks go further.
Strategies to fight inflation
Let’s look at how to deal with inflation and the strategies to use for them. Strategies your business can use to combat inflation and how one can maximize cash flow.
Diversify supply chains
A strong and diverse supply chain can provide businesses with several benefits to combat inflation, including increased resilience to market fluctuations and a greater ability to negotiate favorable terms with suppliers.
By diversifying the sources of raw materials and other inputs used in the production process and sourcing from multiple suppliers, your business can reduce reliance on a single supplier and mitigate the impact of supply chain disruptions.
Also, using multiple transportation methods, such as air, land, and sea can help.
Focusing on pricing
Another strategy to combat high inflation is refocusing your strategic pricing. By analyzing market trends and keeping an eye on the competition, your business can create pricing strategies that help you remain competitive and protect your bottom line.
Strategic pricing may involve adjusting prices in response to changes in the cost of raw materials and shipping or implementing pricing tiers or bundle pricing to optimize profits.
Put resources that increases profitability
To combat inflation, focus on putting your resources into profitable areas. This may include investing in research and development to create new products or improve existing ones, expanding into new markets, or improving operational efficiency through technology or other tools.
By focusing resources on areas that have the potential to drive growth and increase profits, your business can better navigate challenges that arise during times of inflation and see greater profitability. It is crucial to carefully assess where your business’s most significant opportunities for profitability lie.
Streamlining services
Streamlining your service or product offerings can help you hedge against inflation. The streamlining process may involve eliminating low-margin products or services or consolidating multiple offerings into a single, more efficient offering. By streamlining your product or service mix, your business can reduce costs and improve profitability by reducing production and lowering costs that allow focus on higher-margin products or services. Streamlining can help your company focus its resources on the areas of the business that are most important, allowing you to compete better in a challenging economic environment.
Build Flexibility
You must build flexibility into your cash flow projections and financial planning and analysis (FP&A) process. This may involve creating multiple scenarios that account for different inflation levels or other economic variables.
A professional accounting firm can review your business operations and help you implement efficient FP&A processes and accurate cash flow projections to realize higher profit margins during inflation.
Future commodities contracts
Engaging in future commodities contracts can help you hedge against price increases that happen during inflation. These contracts allow businesses to lock in prices for raw materials or other inputs at a future date, providing some protection against potential price increases. By implementing future commodities contracts, your company can reduce the impact of rising costs on its bottom line and better plan for future expenses.
Inventory of stocks
By maintaining sufficient inventory, businesses can reduce its reliance on last-minute production needs and better handle disruptions in the supply chain. Additionally, stockpiling inventory can help one take advantage of bulk purchasing discounts and negotiate more favorable terms with suppliers.
Stockpile inventory can also tie up capital and create storage and handling costs.
Cutting down on labor costs
Reducing labor costs is an excellent solution for inflation problems. Wages and benefits can account for up to 71.8% of company’s operating costs. Reducing these expenditures can help you save money during inflation and put funds toward other business areas.
This could be done by automation and outsourcing internal processes. Also outsourcing operational tasks like invoicing, financial reporting, and data entry to a professional accounting firm can help in combating inflation.
