What does the high inflation rate mean for business
Posted on 3rd August 2022 at 13:22
The inflation rates in the UK are high due to the coronavirus pandemic, the war in Ukraine and the resulting pressures on the global supply chains. What has also added to this is the shift in the labour market resulting in labour shortages and higher wages which have increased the costs of goods and services. Unfortunately, the combination of factors has created a perfect storm resulting in higher inflation levels.
How does high inflation impact my business?
Businesses are impacted by high inflation in many different ways:
• Goods and services they buy may increase in cost
• Supply chain pressures may result in increased delivery timescales
• Transportation and shipping cost increases
• Employee demand for higher wages to combat the rising cost of living
All these factors combined can really squeeze the profit margins in the business making it more difficult to operate and generate a profit without significant price rises. Increasing your prices is probably inevitable but often you may want to try and absorb as much as possible to remain competitive and keep customers buying.
How can you tackle inflation increases?
Understanding your business costs and being able to forecast is essentially in surviving this period of uncertainty and higher costs. We are all trying to grapple with spiralling costs, and it requires a calm approach and level head to look at the figures and work through some options and review the consequences.
Some of the key things you can do are:
• Review your costs – take a look at your supply chain costs, building and utility costs, and expenses. Can you find more competitively priced alternatives or make reductions in what you use?
• Review your pricing – after reviewing all your costs, if there are no savings to be made then maybe your pricing may need reviewing. Look at what your competitors are doing and listen to what your customers are saying to gauge what might be a realistic price increase that won’t harm your sales.
• Forecast – it is important to stay on top of your finances and project where you think you are going through a cash flow forecast so you know where you stand and can plan accordingly.
• Build/amend your business plan – it is useful to have a business plan so that everyone knows what the key objectives are, what you are trying to achieve and how you intend to get there. If you have a business plan this may need amending to account for the changes you are having to make.
All of these above suggestions will arm you with the knowledge you need to make sound decisions and are something that we can support you with. It is important to know that you are never alone as one of our clients as we are always there to support and guide you. With our extensive experience as accountants and in working in industry, we know how to provide practical support and advice that can help you manage your business through challenging times and assist its growth.
With inflation looking likely to remain at this level for some time before it starts to fall, don’t bury your head in the sand or struggle on your own, get in touch and let us help you.
Tagged as: Business Growth, business review, business support, cost reduction, Financial Advice, financial planning, inflation
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