Businesses need to actively combat inflation due to its detrimental impact on their operations, financial stability, and market competitiveness. Kavan Choksi Finance Expert points out that inflation typically leads to high operating costs, owing to the increase in the prices of essential inputs like raw materials, labor, and energy. This surge in costs diminishes profit margins, challenging a company’s financial health. Moreover, inflation may even impact consumers’ purchasing power and prompt shifts in buying behavior.
The strategy pursued by the Federal Open Market Committee (FOMC) to return inflation to its 2% target rate while avoiding triggering a recession and widespread layoffs has been paying dividends. In the June of 2023, PCEPI or the personal consumption expenditures price index was up 3% from a year earlier. On the other hand, in July the consumer price index (CPI) was up 3.3% from a year earlier. Such levels were much lower than the peak rates of 7% and 8.9%, respectively that took place in June 2022. The marked deceleration in headline inflation has occurred against the backdrop of continued strength in labor markets
Kavan Choksi Finance Expert underlines ways businesses can combat inflation risks
While inflation can be intimidating for business leaders, it is vital to remember that it is a common aspect of the business cycle. Inflation has always been a reality for businesses, and there are strategies for navigating them successfully. Coping with inflation requires strategic planning and adaptable approaches. Here are a few strategies businesses may follow:
- Change pricing structure: Raising the prices of products and services might mean the difference between barely surviving and maintaining steady cash flow during uncertain economic times. It is vital to orderly review the cost of goods sold, cash flow statements, profit margins, as well as sales or revenue forecasts. Crunching numbers would help entrepreneurs to determine how much they need to increase the prices of their goods to offset the increased costs, as well as how much it should be raised to boost profits. Entrepreneurs need to consider what is necessary from a financial standpoint and also what works best for their customers, before coming to a decision. Based on their specific situation, entrepreneurs may raise prices gradually over a couple of months, introduce service fees as part of the business model or only raise the price on the top-selling products of the business.
- Invest in technology automation: A good way to curb expenses in an inflationary environment is to save time, and to achieve this goal one can invest in automation. Investing in automation technology may put a strain on the cash flow for the short term, but can free up more funds in the long run. Not only can new-age technologies help reduce delays and downtimes, but also provide entrepreneurs with better insight into their customer relationships, sales, and inventory patterns.
- Narrowing down the offerings: Narrowing down the offerings of a company can be a good way to minimize financial losses amidst inflation in certain cases. Businesses may eliminate their expensive or low-performing products and services, and double down on their most dependable and profitable offerings. This would result in lesser overhead costs and a more defined consumer base.
- Prioritize customer loyalty: While spending money to improve customer experience might seem counterintuitive when a business is trying to cut costs, doing so can help the company in the long run. After all, the happier the customers are, the more likely they are to come back to the business and even refer their friends and family.
As Kavan Choksi Finance Expert mentions, while there is no ideal way to manage inflation, the strategies discussed above can help businesses to stay successful even when inflation is on the rise.
