The rising rates of inflation have been in the news a lot lately.
You can read our blog here on exactly what inflation is and whether it’s good or bad for you, but this blog deals with how to protect to business against inflation as much as possible.
Here are our top tips on action to take now to avoid problems later:
- Protect your cash
When inflation is rising things cost more, so you will need more money in your accounts to buy the equivalent goods and services. Protecting your cashflows will help you have more in reserve and you can find out how to do so in our blog here.
- Keep an eye on your spending
It follows on from the point above to spend less to protect your cash balances, but that is not always possible for trade to continue. Instead, look at expenses that are increasing above the rate of inflation and see where you can cut back on these. You may need to speak to your suppliers or shop around to see what the market average is to see if you can find a better deal elsewhere.
- Hire cautiously
Businesses need new staff to enable growth but now is not the time to take a punt and hire on the off chance it works. Identify your needs and exactly who you need to hire or whether you need to hire at all – could the need be distributed amongst existing staff or could current part time team members do more hours?
- Use tech to automate
Automation can make tasks happen faster and more efficiently, saving you time and money. Most of our clients already use Xero for the their accounts but perhaps you could automate emails, marketing or contracts as well?
- Look at your service contracts and subscriptions
Now is also a good time to review your service contracts and subscriptions – do you still need them and do they add anything to your business? If not, now is the time to get rid and save the cash flow.
- Pay down residual debt as interest rates rise
As inflation rises it also usually follows that interest rates rise as well as the Bank of England tries to encourage people to spend less, thereby bringing inflation back under control. Many loans and overdrafts have a variable interest rate which means it will cost you more in interest payments. Also, as more of your repayment covers the interest, less of it will be repaying the debt itself meaning you will owe more and for longer. The sooner you repay your debts the better – but remember to not strangle your cashflow.
- Revisit your own pricing
If all your input prices are rising you have three choices – put up your own prices to compensate, absorb the increases and see your profits reduce, or a combination of the two. Look to see what competitors are charging and ensure that you are in line with them and not bearing the brunt of inflation on behalf of your customers. You might think that keeping the prices lower will attract custom away from your competitors, and that may be the case, but you will be working harder just to achieve the same levels as before the inflation rises.
If you have any questions about any of the above points and whether or not they could work for your business please get in touch.