Inflation is affecting everyone and every business across the globe. How do you do business during these inflationary times and where should you pay attention. Soaring inflation is making things difficult for business as costs rise and, in some cases, go out of control. Consumers are also experiencing the pressures of rising prices and hence we have the cost-of-living crisis.
What is inflation?
There are two main causes of inflation:
This is when the demand for goods and services exceeds supply. For example, after Covid there was a shortage of semiconductors for cars which meant the car industry could not meet the demand which in turn pushed up the prices of new and used cars.
This is when there are rising costs which means the final product is more expensive. For example, currently the cost of food is very expensive because we import the majority of our foods which has meant the rising costs of transport (due to high fuel prices) and expensive packaging costs means higher prices in the supermarket.
Inflation therefore refers to a general rise in prices across a wide range of goods and services. As a result, your pound sterling is worth less today compared to this time last year. You are simply not able to buy the same amount for £20 in January 2023 that you did say in January 2022.
Inflation affects consumers most directly, but businesses are not exempt because in the end the rising costs affect them too. Plus, businesses will have wage inflation to consider. You can see this currently in the UK.
Groups of the working population including ambulance workers, fire fighters and workers at Royal Mail have gone on strike because they want higher wages to meet their own bills which have risen.
How’s my business impacted by inflation?
Many of you as business leaders are finding it difficult to take decisions about the future. Headlines such as IMF’s prediction on UK’s expected growth don’t help at all although the Chancellor insists that the UK outperformed many such forecasts last year.
We will wait and see but what is that you need to know and do, to make sure you make it through these uncertain times.
You may have raised your prices already to keep up with increased costs but the key to fighting inflation is going to be cash flow. If you have not yet increased your prices, then you need to think about looking at this first. You may want to talk to us to bounce off ideas in which case get in touch with your manager now.
Here’s our guide to how to maintain a healthy cash flow. But what else can you do to make sure your business survives this period.
What if I can’t pay by bills?
Make sure you are reviewing your business frequently. It is paramount that you look at your business overall regularly and hold your board meetings. You need to make sure the sales funnel is still relevant given the current economic condition. Also pay close attention to your costs and any supply chain issues.
Having updated forecasts will make sure that any problems in the cash flow come to the surface quickly. There may be ways you can deal with your creditors. If you know which bills you won’t be able to pay, you should contact the supplier as soon as possible. This will give you the opportunity to make an arrangement like spreading the costs over number of weeks and so easing the pressure.
The Law in the UK supports those directors who take the correct action like connecting with the creditors early because it shows that they are fulfilling their fiduciary duty under the Companies Act.
But if you as a director have tried everything with your creditors and have failed to reach an amicable arrangement then you must reach out for prompt advice from the professionals. We’re here to help. We can discuss whether business continuation is still viable and recommend the right options.
You can avoid insolvency because it is in the government’s interest that your business survives and does well. Remember the key is to track your numbers and take early advice. Get in touch by emailing your manager if you need to discuss this any further.