Strategies to Help Your Company Weather Inflation

Strategies to Help Your Company Weather Inflation

 

Many businesses have experienced a challenging past 12 months. The pandemic and resulting quarantine measures may be starting to ease, but companies still need to face the prospect of high inflation on the horizon. While inflation was on a downward trend previously, the Federal Reserve just raised its estimate of average inflation this year from 3.4% to 4.2%.

An increase in inflation has a number of effects on the economy. First and foremost, it erodes purchasing power as the cost of retail goods and services increases. It can also raise the cost of borrowing as interest rates increase due to increased risk. 

Below are a few ways:

Get spending visibility:

High-resolution spending visibility is the foundation of any expense management capability. It enables managers to fully understand where money is spent and who spends it. In an inflationary period, it is critical to establish repeatable, end-to-end, actionable visibility of spending by cost category, business process, function, and business unit. This is the foundation for all other productivity efforts. It enables the right level of accountability throughout the organization to ensure that all decisions are made knowing the full impact on the P&L.

Get spending visibility

Differentiate between strategic and nonstrategic spending:

In any disruptive environment, odds are higher that executives will make choices that jeopardize the company’s long-term strategy. It’s not uncommon to make broad-based cuts that are not aligned with the company’s strategy — and as a result, will not yield an optimal return on investment nor maximize shareholder value in the long run.

Eliminate work;

With labor shortages and ballooning labor costs, eliminating the work itself has the greatest impact. Companies that do this well use a clean-sheet mindset, or zero-based redesign, which can help reset the way work is done. This approach forces companies to scrutinize both what activities are performed and how those activities are performed, with specific levers to eliminate unnecessary work and automate.

Diversify your investments;

To maintain your purchasing power over the longer term, determine the right assets for your investments, considering your income, expenses, risk tolerance, and time horizon. If inflation is above what you’re earning in Treasurys, that part of your portfolio loses buying power. But, there are other options that make up for it.

Negotiate lower prices on everyday expenses;

To counteract higher prices, you can negotiate a better deal on almost anything, according to Andres Lares, managing partner at Shapiro Negotiations Institute in Baltimore. Start by building a rapport, then ask if there are any programs or discounts you qualify for, Lares advised. “There is no harm in asking.” Streaming services, insurance premiums, cable bills, cell phone plans, and gym memberships — especially now — are classic examples of recurring costs that are often negotiable, and so is the APR on your credit card.

Assess expenses;

Finally, one of the most effective ways to address increasing inflation is to assess your expenses. Take a serious look at costs and operating expenses. You may be able to identify areas where you can make savings and create a buffer that can absorb any increased costs.

Assess expenses

Review Your Budget;

Since both temporary and lasting inflation will impact the cost of everyday items, it’s important for you to regularly revisit your budget to ensure you’re accounting for price changes over time. If a large part of your budget goes toward items such as gas, utilities, and food that can be impacted by temporary price increases, consider ways to save money in these areas when you hear that inflation might be driving prices higher. 

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