4 Steps to Beat Inflation in Your Business
What is your plan?
Inflationary pressures are surging around the world. First they start showing up in shortages of goods, then of services, then of labor and there is often only one approach for most businesses in the financial toolbox to confront its effects—pay more now and hope you can recoup it in higher prices to the customer. If you can’t then you get to deal with higher priced goods sitting in the warehouse and growing old. (But hey, at least you don’t have to remake or reorder your stock at the now even higher prices!)
Here are 4 Steps to Managing Inflation now and in the future:
1) Raise consumer prices today. Don’t wait for your cost increases to cripple your business before you start to incrementally increase prices. There are lots of ways to increase prices, but starting with two categories 1) your fastest moving inventory and 2) your least profitable inventory. After these two are adjusted start looking at the rest of your products and services.
2) Give your team members a mid-year raise. It doesn’t have to be a huge raise, but they need to know and see that you want them to not suffer for staying when they have family, friends, and neighbors getting big raises for taking new jobs. Each good person that leaves during inflationary times is likely to cost you more in salary to replace—and you still have to train them! And then your new employee/investment will will add insult to your fiscal injury when they share their new higher salary with their new coworkers. Ouch.
3) Hit up every supplier for improved terms. Some will cry foul, but if you can get another 30 to 60 days added to your terms it can make a huge difference as you navigate the inflationary pressure to your books. Here are two suggestions for success:
1) Meet them online or in person and ask directly for what you need. Don’t email them about this. Be open and confident. If the request is sound, they will listen and seriously consider it—unless you are a late paying pain.
2) Offer them something valuable for them. One good trade off with a long term vendor is to offer to through an open PO for a one year supply at the current price, where they can invoice you following the new terms. This allows them to work on managing the cost of producing for you effectively so they aren’t caught flat footed when your order for the fall rush comes in and they have to fight vendors for materials they could have pre-ordered months earlier at a savings.
4) Treat your cash like you are in a crisis already. Some of you may already be struggling, but when an economic hit like mass inflation hits, jump on your cash flow analysis like a maniac. One tool that you may want to implement is the 13-week Cash Flow Forecast. This tool is a tactical tool to manage cash flows aggressively. Often this is forced upon businesses in a cash crunch, but why implement this for the next few months and you’ll have a radically improved handle on your cash flow and if a crisis is coming. Can you may find that if you don’t change something fast you will be in a cash crush in the next few months. Get forewarned today and lead your business through this not of a fiscal cliff.
How to build a 13 Week Cash Flow Forecast using Quickbooks and Excel
SIDE NOTE: If when running your 13-week Cash Flow Forecast you find any of these to be the case:
your cash on hand will run out in the next 3 months
you have an unusually large payment coming due that will cripple your cash position
your cash balances are far different week to week that what your Forecast predicted
payroll has you worried
you have capital needs and cannot make the needed commitments
One critical element of each suggestion is that it is about cash. Be careful during these times to spend at least as much time reviewing your Cash Flow statements as you do your Profit and Loss (P&L).
I’ll end with three quotes on Cash Flow, just in case you aren’t convinced to give it more attention.
“Never take your eyes off of cash flow because it’s the life blood of business.”
-Sir Richard Branson
“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.”
-Peter Drucker (Inc Magazine Interview)
“Revenue is vanity, profit is sanity, but cash is king.”
-Unknown
