MTA February 2023 SA

FOLIO MANAGING PLACEHOLDER
INFLATION
Five Tips
to Fight
Inflation
Inflation is challenging to manage
as the cost of parts, labour and
other business inputs continue to
rise. At worst, these pressures can
bankrupt a company or employer,
as seen recently in the building
sector with its rapidly rising
costs. However, looking back at
past inflationary periods, some
businesses have actually reported
increased profits. This should be
your goal. Here are five tips to
help you weather the storm and
keep your business healthy and
profitable.
Analyse the Impact of
Inflation on Your Business
Inflation can impact your business
in several ways. As mentioned
previously, rising costs are the most
obvious risk – but not the only one.
• Rising input costs may force you
to advance purchase more stock
to beat future price rises, which
can hurt cashflow. As we all know,
good cashflow management can
keep a struggling business afloat,
while poor cashflow management
can sink a profitable business.
• If you have outstanding debt, it
may become more difficult to
repay as interest rates rise with
inflation.
• Inflation can also cause sales
to decrease as prices rise and
people have less discretionary
income. If you don’t have access
to historical data, speak with
an MTA member who has been
through the cycle previously.
Adjust the numbers in your
forward forecasts and see how
you might be affected under
different demand scenarios.
• Price increases will be one of the
tools you can use to offset costs,
but how price sensitive are your
customers? This also needs to be
factored into forward projections.
Monitor Your Expenses and
Cut Costs Where Possible
Knowing exactly what is happening
with your fixed and variable outflows
is critical to staying in control of
inflation, rather than falling victim to it.
Rising costs can sneak up on you, as
they have a cumulative effect. They
erode profits, but counter measures
can be taken to retain your margins.
Here are a few ideas:
• Get tough on waste and drive it
down
• Look for ways to improve
efficiency and be open to new
ideas from your staff
• Consider changing suppliers
• Renegotiate your fixed expenses
• If your cash position is strong,
seek discounts for early payments
• Streamline your business
processes to reduce costs.
Adjust Your Pricing
As a general rule, customers are
far more accepting of price rises
during inflationary periods. They
don’t like it – but they understand it.
If you haven’t reviewed your pricing
for some time, now is the time.
You may find that your margins
have already been slipping and
by carefully increasing prices, you
actually become more profitable.
It can be a difficult balancing act;
trying to remain competitive while
also staying profitable.
If you have a fixed-price contract,
you may want to consider
renegotiating it to reflect new
costs or pricing structure.
Streamline Your
Business Processes
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In the current post-Covid
environment where there are still
supply constraints throughout the
economy, inflation may be coupled
with longer wait times for deliveries,
more expensive transportation,
and other challenges. To avoid
unnecessary delays and costs, it
would be beneficial to streamline
your business processes.
There is also merit in simplifying the
business processes you can control.
Done correctly, removing complexity
can help improve efficiency and
reduce costs without hurting quality.
Optimise your supply chain and
consider using more efficient
transportation methods, such as
consolidating shipments. You may
also need to improve your inventory
management system to reduce the
cost of carrying inventory.
Take Advantage of
Technology
As inflation increases, you should
work smarter to take advantage
of technology that will improve
efficiency and save money. Tech
projects are not without pain – but
inflation provides the motivation
to push them through. An example
would be software to automate your
billing and reconcilement process,
or other areas, such as business
intelligence tools to better forecast
sales and manage inventory.
Finally, maximise the tech you
already have. As an example,
make the most of your Customer
Relationship Management (CRM)
system to improve customer
engagement. CRM updates
today are invariably focused on
automating steps in the marketing
and sales funnel, and automating
communications across fragmented
user groups. You might be able to
use profiling tools on your CRM to
identify clients that are the least likely
to reduce spending when prices rise
and target campaigns to this group.
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