Business stress is rising faster than inflation
8 June 2022
In the March 2022 quarter, the Consumer Price Index (CPI) increased 6.9% when compared with the March 2021 quarter. This is the largest movement in CPI that New Zealand has seen since a 7.6% annual increase in the June 1990 quarter.
When the economy is experiencing high inflation, business owners can expect to be impacted in several ways, including:
Higher costs from suppliers.
Higher labour costs.
Higher operating expenses, from rent, office supplies to utilities.
Higher cost of borrowing due to higher interest rate.
To successfully navigate the high inflation environment in the months ahead, your business will need a strategy. To help you get started, here are some simple tips to help you fight high inflation.
1. Make a budget and forecast your cashflow
Preparing a budget to keep track of your business expenditures helps create financial stability and put you on the right path to achieving your business goals.
Cash is King. The number one reason small businesses fail is due to cashflow problems, not lack of profit. In fact, a recent study by U.S. Bank found poor cash flow management or poor understanding of cash flow contributed to the failure of small businesses 82% of the time.
Being able to update interest rates on a timely basis is key to projecting real time cashflow. Automating your expenditure data from your accounting system to your cashflow projection will increase its accuracy.
Review, understand and challenge every line of expenditure. When was the last time these costs were reviewed? Is this the most effective and efficient use of these funds? Are there any alternatives? Is there new or improved technology available?
With the budgeting and forecasting systems available today you can easily prepare different scenarios and business cases for capital investment. This allows a business to efficiently determine the impact to the bottom line and make informed decisions.
2. Take the opportunity to review your daily processes and existing systems
Streamlining your processes helps to reduce inefficient procedures and can also save on admin costs while labour costs are increasing.
Increased efficiency and productivity are just the beginning. Clearly documented procedures can also help reduce human errors, keep work and documentation consistent, enhance employee training, and improve staff and stakeholder satisfaction.
Undertaking a process review will highlight the main activities of your existing systems and assist with identifying the gap between what you have and what you want. Understanding and getting feedback from the employees regarding their daily processes also helps to improve communication between the employees and the employer.
Furthermore, make your software talk to each other. An integrated digital solution can hugely streamline your daily procedures.
3. Manage inventory to the right level in an inflationary environment
With the increasing cost of shipping and high demand in inventory, keeping your inventory at the right level can be an efficient way of managing risks.
Real-time inventory management software can be a big help maintaining inventory at the right level, as it sends you a notification when the inventory level is low.
Taking the time now to zoom out from your busy schedule so you can see the whole picture of your business will help ensure you’ve got the right business processes and software in place to help you navigate an inflationary environment.