Combating Inflation
Businesses must stay informed on how to combat worldwide inflation and prevent declining profit margins as the cost of goods and services increases.
LONG BEACH, CALIFORNIA, UNITED STATES, March 6, 2023 /EINPresswire.com/ — With rising inflation worldwide, businesses must stay informed on how to combat inflation to prevent declining profit margins as the cost of goods and services increases. Whether a small business owner or the CEO of a large corporation, having the right accounting, tax, and financial strategies can help navigate the challenges of inflation and emerge stronger than the competition.
Learn eight strategies a business can use to combat inflation and how to maximize cash flow.
1. Diversify and Strengthen Supply Chains
A strong and diverse supply chain can provide businesses with several benefits to combat inflation, including increased resilience to market fluctuations and a greater ability to negotiate favorable terms with suppliers.
There are several ways that businesses can diversify and strengthen their supply chains. One approach is to diversify the sources of raw materials and other inputs used in the production process. By sourcing from multiple suppliers, a business can reduce reliance on a single supplier and mitigate the impact of supply chain disruptions.
Also, consider using multiple transportation methods, such as air, land, and sea. Varied shipping methods can help a company reduce reliance on a single mode of transportation and provide flexibility when disruptions occur. With recent supply chain disruptions in canals and train union disputes, the risk of using particular supply chains can increase costs when shocks occur.
2. Focus on Strategic Pricing
Another strategy to combat high inflation is refocusing strategic pricing. By analyzing market trends and keeping an eye on the competition, a business can create pricing strategies that help it remain competitive and protect the bottom line.
Strategic pricing may involve adjusting prices in response to changes in the cost of raw materials and shipping or implementing pricing tiers or bundle pricing to optimize profits.
To minimize customer impact, consider gradually increasing prices over time rather than implementing changes all at once. Being strategic with pricing can help navigate the challenges of high inflation and see an increase in revenue by changing relationships with customers or clients.
3. Put Resources into Areas That Grow Profitability
To combat inflation, focus on putting resources into profitable areas. This may include investing in research and development to create new products or improve existing ones, expanding into new markets, or improving operational efficiency through technology or other tools.
By focusing resources on areas that have the potential to drive growth and increase profits, a business can better navigate challenges that arise during times of inflation and see greater profitability. It is crucial to carefully assess where a business’s most significant opportunities for profitability lie.
A strategic accounting firm can help analyze financial reports to discover areas of growth and help determine where to invest resources.
For instance, the Inflation Reduction Act provides tax credits for companies implementing environmentally-friendly practices like clean manufacturing, fuel, electricity, and vehicles. Understanding this benefit can guide purchasing and operational decisions to benefit from tax credits and deduction changes to boost the bottom line. These incentives allow companies to stabilize their energy use and lower costs and risks in the long run.
4. Streamline Product or Service Offerings
Streamlining service or product offerings can help hedge against inflation. The streamlining process may involve eliminating low-margin products or services or consolidating multiple offerings into a single, more efficient offering. By streamlining the product or service mix, a business can reduce costs and improve profitability by reducing production and lowering costs that allow focus on higher-margin products or services. Streamlining can help a company focus its resources on the areas of the business that are most important, allowing it to compete better in a challenging economic environment.
For example, if a company sells electronic health records software with multiple ancillary products, review which add-ons bring in the most profit. Focus on developing and marketing products that already sell well and wait for more opportune moments to push other services. Do the product offerings bring in additional customers that provide higher margins for the business?
5. Build Flexibility into Cash Flow Projections and FP&A Processes
A business must build flexibility into cash flow projections and financial planning and analysis (FP&A) processes. This may involve creating multiple scenarios that account for different inflation levels or other economic variables.
A professional accounting firm can review business operations and help implement efficient FP&A processes and accurate cash flow projections to realize higher profit margins during inflation.
By having a range of projections to work with, a business can better anticipate and plan for changes in the market. A company can consider implementing FP&A tools and processes that allow it to quickly and easily adjust projections as needed. This can help a business stay agile and respond quickly to changes in the market.
6. Engage in Future Commodities Contracts
Engaging in future commodities contracts can help hedge against price increases that happen during inflation. These contracts allow businesses to lock in prices for raw materials or other inputs at a future date, providing some protection against potential price increases. By implementing future commodities contracts, a company can reduce the impact of rising costs on its bottom line and better plan for future expenses. If a business is dependent on a particular commodity like pork or corn, derivative contracts can allow for hedging against rising rates by keying contracts to particular published rates like the Federal Funds Rate.
However, there are risks associated with using futures contracts, including the potential for price changes that are unfavorable to the business resulting in a loss within the contract. It is crucial to carefully assess the potential risks and rewards before entering into any futures contracts. Companies should ensure they have the financial resources and expertise to manage futures contracts effectively.
7. Stockpile Inventory for Stability
By maintaining sufficient inventory, a business can reduce its reliance on last-minute production needs and better handle disruptions in the supply chain. Additionally, stockpiling inventory can help a business take advantage of bulk purchasing discounts and negotiate more favorable terms with suppliers.
Stockpiling inventory can also tie up capital and create storage and handling costs. It is essential to thoroughly review existing inventory and financial projections to determine the best inventory items to purchase in bulk. Perform analysis like supply chain stress tests to understand which items a business may benefit from having on hand.
8. Reduce Labor Costs
Reducing labor costs is an excellent strategy for fighting against inflation. Wages and benefits can account for up to 71.8% of a company’s operating costs. Reducing these expenditures can help save money during inflation and put funds toward other business areas.
To reduce labor costs, consider automation and outsourcing internal processes. For example, implement outsourced accounting and bookkeeping services rather than hiring in-house accountants. Also, consider outsourcing operational tasks like invoicing, financial reporting, and data entry to a professional accounting firm.
Combat Inflation With Accounting Services From a Reputable Firm
By working with experienced professionals, businesses can get the financial guidance and support they need to navigate the challenges of rising costs and declining profits.
Business accounting services can help a company identify cost-saving opportunities, implement pricing strategies, and make informed decisions about allocating resources for maximum profitability.
Additionally, a team of experts can provide valuable insights to combat inflation by looking into the market trends and economic conditions that may impact a business and help it stay ahead of the curve.
Connect With Windes
Windes
+1 844-494-6337
info@windes.com
Visit us on social media:
Facebook
Twitter
LinkedIn
