As you’d expect, businesses are significantly impacted by the economic climate. A company’s hiring practices, capital expenditures, and wage rates are all influenced by consumer spending levels.
What is inflation?
Inflation is the term used to describe a widespread and persistent rise in prices. The Consumer Price Index (CPI) is an index that measures inflation by following the price movement of a representative basket of goods and services over time. Inflation is typically expressed as a percentage rate and the current rate of inflation in the UK is 12.7 per cent.
The impact of inflation on businesses and how to handle it
As the price of goods and services rises, the ripple effects are felt well beyond the individual customer. Wages go up because workers demand more money to keep up with rising prices (or move jobs altogether).
Companies feel the effects of supply pressures when they must pay more for materials and final products. Costs can be affected by shortages in raw materials as those felt by the lumber industry. It’s possible that supply chain problems and/or employee shortages have already begun to plague your organisation. To combat inflation, think about doing the following:
To determine if raising prices will enhance profits, a new break even analysis should be conducted. Customers may have been accustomed to present prices, therefore this choice should not be made hastily or without considered communication.
The same goes for your spending; give it a new look to see if you can cut any unnecessary costs. Is there any way to improve efficiency? Finding “waste” in your current operations might be a challenge, but using lean manufacturing concepts can help.
Create updated projections and strategies as plans may need to be adjusted if circumstances call for it. Check your business strategy to see if there’s anything that needs to be revised. You can also do a new budget and cash flow projection.
If you’d like to speak to a team of accountants who know how to take the numbers off your hands, get in touch with Trinity today.