The cost of living has risen at its fastest pace in 10 years, with the Consumer Prices Index (CPI) reaching 4.2% in the year to October. The Office for National Statistics (ONS) has said the rise is due to higher fuel and energy prices but the cost of second-hand cars and eating out also increased.
Since Covid restrictions were lifted and the economy began to open back up, inflation has continued to inflate. With this in mind, the Bank of England says it may have to raise interest rates in the "coming months" to tackle rising prices. But October's inflation reading is far higher than the 3.1% rise recorded in the year to September and is in fact, more than double the Bank's target of 2%.
The latest report from ONS reveals the Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.8% in the 12 months to October 2021, a 2.9% rise in the 12 months to September.
But what does this mean for businesses?
Rising inflation can lead to more cautious consumers when it comes to making discretionary purchases. So, it's a good idea to avoid sudden price rises that encourage consumers to look around for cheaper alternatives. As a business, it's more sensible for you to look at forming a gradual plan for price increases so you can continue to grow as a business.
Inflation will also affect the prices you as a business pay for stock plus other expenses. So now is a good time to reflect on stock levels and consider alternative sources of supply. We also suggest reviewing the profitability of your products, goods and services to ensure they are and will remain profitable.
In these uncertain times, it's a good time to plan ahead. Our team of experts are experienced with supporting business growth and have shared a few ideas to help with remaining resilient as a business:
- Review budgets and set realistic, achievable targets for the remainder of 2021 and 2022.
- Get rid of won't pay customers.
- Review debtors list and chase up overdue invoices where appropriate.
- Make sure your terms of business contain explicit payment terms.
- Assign responsibility to one individual within your business for invoicing and collections.
- Agree on extended payment terms with all suppliers in advance.
- If appropriate, review banking facilities and discuss future needs.
- Put extra effort into making sure your relationships with your best customers are solid.
- Review and flow chart the main processes in your business (e.g. sales processing, order fulfilment, shipping etc) and challenge the need for each step.
- Encourage your staff to suggest ways to streamline and simplify processes (e.g. sit down and brainstorm about efficiencies and cost reduction).
- Use 'bottom up' budgeting where everyone in the office gives input on areas over which they have control – target a 10% cost saving.
- Review your staffing needs over the next few months.
- Get your members of staff involved in a discussion of likely trading conditions and get their input on reducing costs and maintaining revenues.
- Review your list of products and services and eliminate those that are unprofitable or not core products/services.
- Establish your key performance indicators (KPI's) and measure them on a daily basis e.g:
- Sales Leads generated
- Orders Supplied/Fulfilled
- Cash Balance
- Stock Turnover
- Debtor Days
- Gross Profit
- Net Profit
- Pull everyone together and explain the business strategy and get their buy-in
As an established accounting firm in West Yorkshire, our team of experts have considerable experience with helping our clients develop strategies and remain sustainable during turbulent times. Get in touch today to see how we can work together.