You may have noticed recently that bills from your suppliers or contractors have increased. Maybe your Business’s rent has gone up or petrol is costing a little extra. If you are noticing an overall reduction of money left over in your budget and your Business Profits this may be an impact of inflation on your Business.

Businesses feel the impact of inflation in two key ways:

1.When prices increase, a business will experience increased costs of raw materials, supplies, manufacturing and overhead costs.

While Businesses have the option of transferring the cost of these increases to consumers, many are wary to do so. Businesses will often absorb some or all of the increased cost in order to retain their customer.

2.When inflation rises, consumer purchasing power is lowered meaning they can no longer purchase goods and services at the same rate they used to.

This can result in Businessesrecording lower sales, which will reduce the businesses overall revenue.

Not all Businesses are going to feel the impact of inflation in the same ways. Depending on the nature of their market, the types of products and/or services they provide and their brand strength they may feel the effects of inflation more or less severely.

Businesses providing essential goods and services are less likely to feel the impacts of inflation. Spending on essentials is unavoidable. Consumers are likely to reduce their spending onnon-essential goods and services when prices rise.

Businesses with few competitors are also less likely to feel the impacts of inflation. If you have a business in a sector with many competitors, you may be hesitant to increase prices to avoid losing your clients.

There is no full proof way to protect your Business from inflation, though there are some strategies you can put in place

Evaluate Your Supply Chain Risks

A few key vulnerabilities to look out for regarding supply chain risk during times of inflation include:

• Single-supplier dependencies
• One commodity representing over 10 per cent of your Cost of Goods Sold
• Long supplier lead times (e.g. overseas suppliers)
• Bulky, heavy, perishable and/or hazardous materials which are difficult to store
• Materials that are run through a ‘Just In Time’ supply chain

To alleviate these pressures, your business should attempt to establish alternative suppliers, but also source from alternative supply chains and review stock levels.

Monitor Business Productivity

Record all the steps of business processes that you and your team carry out each week. Ideally, this will highlight inefficiencies that are occurring. Once you have documented the steps and found inefficiencies you can then put steps in place to eliminate them. This will free up time for you and your team to focus on your value drivers.

Automate

Automating your processes can reduce errors, improve your customer service and streamline processes.

There is software available to automate a number of time consuming processes including accounts payable, invoicing, sales, collections and customer service.

Automating processes will allow your business to increase productivity, reduce costs and increase operational efficiency.

Revisit Your Pricing Strategies

Many business owners are hesitant to raise the prices of their goods or services when inflation is occurring. This is due to a fear of losing consumers to competitors in a time when it seems like the price of everything is increasing.

If possible, you should evaluate the pricing structures of your industry competitors to ensure you are not pricing yourself above the market or are undercharging.

Implementing these strategies will reduce the impact of inflation and help set up for long-term growth.