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7 steps to protect your business from inflation

6 June 2022

What is inflation?

In the simplest terms, inflation refers to ‘a general progressive increase in prices of goods and services in an economy’.

Why is inflation rising?

Inflation is mainly rising because demand is out stripping supply.

This has primarily been caused by business shutdowns during covid, the extra costs, paperwork and delivery times following Brexit, and the level of uncertainty the war in Ukraine has created worldwide.

Large amounts of products such as steel, wood, grain, sunflower oil and fertiliser were predominantly supplied by Russia and Ukraine, leaving massive supply gaps worldwide. This together with the lifting of the energy price cap and sanctions on Russia has accelerated the rise in inflation.

At the moment it’s almost impossible to predict what will happen next. Some experts have suggested that inflation will grow before hitting a peak later this year and then dropping. Some, predict that it will just continue to rise.

With this in mind, what does this mean for your business and how can you protect it?

1. Can you increase prices?

Usually the answer is yes and most businesses have done so where they can.

However, what if you are on or looking to bid on long term fixed-price contracts? Look at the contracts, can the prices be renegotiated, does the contract have an inflation clause built-in allowing you to charge more if inflation goes up, or should you consider pulling away from these contracts? If so, then you should get professional advice before any decisions are finalised.

2. Maximise margins

Do you know your numbers, especially the actual margins you are making on different products, services, markets, customers and locations? Are there areas you should consider reducing / cutting?

Are there recurring costs in your business that you no longer need, such as annual subscriptions for unused software or surplus phone contracts?

Look at anything under utilised including staff, and consider if outsourcing any functions will give you a cost reduction?

If there are certain areas in your business that aren’t doing well, then cutting back on them is an often overlooked way to increase profits.

3. Is your labour efficient?

Are you and your staff spending enough time on high-priority tasks in your business, doing what really matters? If they’re constantly spending time on paperwork and unnecessary reports etc then consider efficiencies that can be made.

It’s easy to forget that wasted time adds up, so maximising the best use of a cloud-based system such as Xero could save you vast amounts of your/ staff time.

4. Consider interest rates and currency fluctuations

It’s also a good idea to check how much you’re paying in interest and is there a better alternative in the market?

Note that the Bank of England believes growth will slow drastically due to inflation, so aren’t keen on large interest rate rises putting further pressure on inflation.

This, along with the dollar often seen as a safe haven in troubled times, has prompted sterling to slide against the dollar. This results in exports costing more, though import costs will be less, though more than negated by the lack of supply mentioned earlier.

5. Make sure you’re not over-reliant on one service

Do you find that all your sales are on one platform? Are most of your sales to one large customer? Do you rely heavily on particular members of staff?

Taking risks is a part of business, but these should be calculated risks, so try not to be over-reliant on one staff member, customer, market or supplier.

6. Look at your personal situation

In such a difficult period for business owners, make sure you look after yourself too, including watching what you eat and ensuring you get enough exercise and time for yourself.

It can be easy to be overwhelmed by worry and guilt, so do take advantage of your support network – family, friends, business partners and so on.

You won’t be able to focus on your business fully unless you feel your best, so take care of yourself!

7. Continue to look after existing customers

I know it’s tempting to go above and beyond for existing customers but in a climate like this, be realistic! Don’t be tempted to over-promise on what you can offer them especially if you’re struggling. They’ll understand and they’ll appreciate your honesty.

Over-promising often leads to disapppointment and therefore lost customers, so continue to cater to them as much as you can without sacrificing the quality of your services.

DM me if you have any more questions or book a Business & Xero Review to get your business on track. Our Xero Certified team are ready to help!

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Graham Potts


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