Small businesses trying to cope with 9% inflation face a difficult balancing act between potentially alienating customers by increasing prices too sharply or absorbing increased costs and risking their survival. How can you cushion the blows? Maintaining a regularly updated cashflow forecast looking up to a year ahead will help to identify any cash shortfall well in advance.
- It may be tempting to sell stock at what it has cost you, rather than what it is going to cost to replace. All well and good if it keeps cash coming in, but an accurate forecast will give you an idea of how long such an approach is sustainable.
- Costs should obviously be minimised as far as possible and feeding in any possible reductions to the forecast will show their impact over the longer term. Reviewing purchasing patterns, for example, could bring cost savings.
- Businesses are not protected by the energy price cap, so it is important to focus on energy usage. Even something as simple as replacing inefficient light bulbs with more modern alternatives could make a difference.
Staffing costs
Staffing costs are likely to be on the increase and generally represent a large proportion of a business’s outgoings. Although a check out free store is not an option for most, technology might be a solution. Any business looking to replace staff or to expand will almost certainly be facing increased wage demands. Recruiting new staff on more generous remuneration than existing employees can foster resentment, so creating more attractive overall packages with flexible working, or providing perks which can be easily revisited, may be more helpful. Managing expectations around unsustainable pay increases as inflation creeps higher is a fundamental concern. Anticipate new challenges The economic situation has brought a level of risk and volatility that many businesses will have never faced before. For now and the foreseeable future, forward planning is about building resilience and managing costs. If you need additional guidance as you weather the storm, please get in touch.