The UK is currently experiencing a high inflation rate. While a normal feature of the economy, too high an inflation rate means people are paying more for either the same goods or less. Therefore, some are hurt more than others.
This increase in prices doesn’t just affect consumers, however. With employees asking to be paid more and a rise in the cost of supplies, businesses are also affected, which can affect profitability. To protect your business against the effects of inflation, you’ll need to consider putting new measures in place.
But what precautions can businesses take to lessen the effects of inflation and ensure they protect their profit margins in an inflationary market? We take a look below.
Conduct a business audit
By arranging an external business audit from an independent party, you get a true reflection of your financial situation by the relevant reporting framework. From this, you can assess whether your prices and costs should be readjusted to reflect the economic climate.
If you do identify weaknesses in the business through the audit, you can then come up with ways in which they can be tackled. An audit is also beneficial for providing clarity to your shareholders. Since the assessment is impartial, these shareholders know if things are being handled properly or if intervention is necessary.
Adjust your costs appropriately
You must research the current market and review what people are willing to pay for your service. As a minimum, you should know your contribution margin, which has likely changed due to inflation and increases in variable costs.
Pay attention to what your competitors are charging for the same services on both a national and global level. Should you be charging more? Is there something else you can offer to customers to draw them in without increasing your costs?
Remember, customers may be used to your current costs and sudden or large increases have the potential to make them go elsewhere. If you’re adjusting prices, give them a heads up or consider rolling back certain discounts on offerings in packages.
Cut expenses where possible
From your business audit, you should be in a stable position to assess your finances and reduce expenses. You might be able to cut costs altogether in certain areas, whereas others may require some negotiating. Your suppliers will be the main source of cutting costs, so ask for discounts on bulk purchases or reduce your quantity of orders.
Additionally, don’t rely on one supplier to keep your business afloat – if their prices increase suddenly, you’ll be stuck paying exorbitant fees. Instead, look to diversify your suppliers and build international partnerships.
Regularly check your supply chain to identify any weaknesses. Spotting these and acting quickly can prevent things from blowing to a halt and affecting your workflow.