6 Ways to Protect Your Business from Inflation

Submitted by Betty White on Tue, 06/28/2022 - 08:17

Business owners and managers are constantly under pressure to reduce expenses while growing their companies. Raw material and supply shortages and rising labor costs have made it much more difficult for businesses to remain competitive. Despite their best efforts, many business owners are unsure how to deal with the effects of inflation. As a result, understanding and preparing for the period of inflation are more important than ever. The economy is still recovering from the pandemic, and with the current situation in the world, the light at the end of the tunnel economy-wise is nowhere near, it seems. So, as inflation and uncertainty grow, here are six ways to protect your business from inflation.

What is inflation?

Before we get into how to avoid it, let's explain first what inflation is.

Inflation is the rate at which prices rise over a specific period. It is often defined as a broad metric, such as the total price increase or the cost of living in one country. In January 2022, inflation reached 7.5 %, making it the highest increase rate in 40 years.

With this said, you can conclude that every country in the world has been affected by inflation. It's something that's happening on a global level. Now, let's see what steps you can take to protect your business from inflation.

Keep your cash protected

Since everything's unpredictable nowadays and interest rates are rising, you desire spending flexibility. When inflation increases, keep in mind that the value of currency diminishes. In other words, it costs more money to perform the same activities. So, the first step is to safeguard your financial reserves and ensure you have enough cash on hand.

Furthermore, reducing your exposure to bad debt is a less visible but critical strategy to preserve your cash. When circumstances are good, you may be tempted to provide your customers or suppliers with larger loans or lines of credit. When inflation rises, this may be a dangerous business since even the most trustworthy lendee might become a hesitant payor when circumstances are rough. So, improve your financial plan and protect your cash.

Be careful with your spending

While creating new initiatives is important, staying focused on your core services or goods is critical. As inflation makes it more challenging to be profitable, you must keep an eye on your spending. Therefore, you need to take measures to ensure that your product or service is the best. This will help you stay ahead of your competitors with your clients.

However, it would be best if you also guaranteed that your investment in new projects is justified. For example, this may appear to be a perfect moment to develop your business, but it may not be. Again, you want more big cash reserves right now, and how money is spent must have a greater than 80% likelihood of producing a good ROI. Any cutting-edge endeavor should be carefully considered if you want to protect your business from inflation.

For example, think again if you want to move your business to a bigger office. This is a considerable investment. Even if you feel you lack space, ask yourself whether it is really necessary? Companies associated with Best Movers NYC said they got more calls for finding movers to empty big commercial spaces than ever before. The times are tough, so don't make rash decisions just because your business has been doing great for a few moments.

Flexibility is key

Being flexible is one of the best strategies to defend your business during an inflationary period. When the cost of something — raw materials, a service, or a piece of equipment — increases, your company’s strategy should change. It is both normal and required. Therefore, the idea here is to be adaptable enough to adjust while maintaining the core goals of your business.

On the other hand, if you take a rigid approach, you may be unable to develop or adapt as your company's needs change. That's why agility and adaptability are more important than ever. As a company leader, you must remain flexible and open to new possibilities and ways of doing things. However, ensure that these new methods are well integrated into your company's culture so that they survive and thrive.

Hiring should be cautious as well

Another piece of advice you should follow is to be cautious while hiring during times of inflation. The key is to hire new people slowly enough to ensure quality but at the same time be fast enough to grow your staff. Overhiring is not a wise idea, but neither is hiring too slowly if it delays getting your goods to market. So, the optimal strategy is most likely somewhere in the middle.

Regardless of your industry, we suggest you consider investing in some employee incentive programs. It may assist you in attracting top employees while limiting the financial effect of inflation. You want the most outstanding personnel on your team through difficult economic times and inflation like this. Simply put, you can't afford to settle for anything less than the best.

Strengthen your supply chain

You probably have limited influence over the cost of goods when starting a new business. However, as the company expands, you get a lot more authority. However, operating, raw material, and supply costs might still account for a sizable amount of your spending. As a result, optimizing your supply chain is another approach to protect your business amid inflation.

That's why working with trustworthy providers is essential whenever possible. This also entails thoroughly reviewing your procurement policies and procedures. If you need help with this, you can consider joining industry groups and associations. These may be excellent sources of information and a possibility to reduce your overall costs.

Embrace innovation

You can protect your organization with technology, but that's not the only thing you should embrace. You can also do it through agility and innovation. It means standing at the forefront of change. On this front, open-source groups are likely to be a valuable ally for information. The more you understand current changes, the more prepared you will be to protect your company from inflation.

As previously said, flexibility and adaptability are critical in difficult economic circumstances. However, it is equally crucial to innovate. That's why businesses nowadays are continuously seeking new methods to stay competitive. On the other hand, companies that are sluggish in adopting new technology and procedures will lose market share. Therefore, to be competitive, businesses must encourage innovation.

To wrap it up

Yes, the times are tough and more uncertain than ever. We can't predict in which direction our economy will develop, and this is not a favorable position for businesses worldwide. However, you don't have to be psychic to set your business on the right track - you have to be smart. With these six ways to protect your business from inflation, you will be able to keep up with the current situation and thrive despite it. It's essential to be careful and not rush into any significant investments. Keep your ambitions at bay but don't be afraid of innovation, and you'll be just fine.