Shielding your business from inflation

Inflation; the silent predator of business stability with a knack for stealthily eroding profits and unsettling operations. As prices rise, purchasing power dwindles, and businesses may find themselves caught in a financial dilemma. With proactive measures and strategic planning, it is possible to mitigate these adverse effects of inflation on your business…

Your inflation shield

Unless you are the government, their fiscal policy writer, or the central banks, it is highly unlikely that you will be able to stop inflation from having any impact at all. In fact, even those big three struggle to find a short term fix as UBS Chief Economist, Paul Donovan, says:

“In as much as governments really can’t change the oil price, central bankers can’t suddenly change the price of wheat and other commodities.”

If you can’t stop it, shielding your business to mitigate it is the next best thing. And you can do so by focusing on the following five steps.

One: Assessing and adjusting your pricing strategy

Price is one of the first things you think of when it comes to running a business; following product of course. It is also one of the things likely to be impacted heavily by inflation.

Stay vigilant by closely monitoring price fluctuations in the market – how are competitors pricing themselves, has the cost of production or service increased – and be prepared to adjust prices accordingly.

For many of our clients who are business owners, customer or client satisfaction is key to their perception of success. It is therefore important to consider how price increases may impact their satisfaction and tailor your process towards that. For example, sudden or drastic changes in price may alienate a segment of your customer base, while gradual adjustments may offset rising costs without causing shock.

Two: Optimise operational efficiency

One of the most straightforward ways you can shield your business from inflation is by making sure it is productive. Start by identifying areas where wastage occurs and implementing cost-saving measures based on your results.

This might lead you to streamline processes, improve productivity, or even embrace technological solutions which enhance efficiency.

All of which can create an efficient web of protection by closing the gaps.

Three: Make sure your services add value

Understandably, consumers can become more discerning about their spending – gone are the days of impulse buying.

So, what makes them part ways with their hard earned cash?

Value added.

Position your business as a provider of value added services or products which justify price increases. In other words, tell them why your business is worth spending money with; what value do you provide that cannot be found elsewhere?

It might be customer experience, personalised solutions, quality, a gap in the market, or even your own level of experience.

Add value beyond the product or service itself, and you just might maintain customer loyalty in periods of inflation.

Four: Be exceptionally good at what you do

As Warren Buffet says, when it comes to inflation, “the best thing you can do is be exceptionally good at something”.

Unlike currency, skills are inflation-proof. If you have a skill that is in demand, and you do it exceptionally, it will remain in demand no matter the price tag.

It all comes down to that age old career advice of “invest in yourself”.

Five: Reinvest within your business

For some companies, there will naturally be excess cash on the books regardless of inflation.

This may accumulate over time and not be immediately needed by the business. Of course, business owners could extract this but again, unless there is a clear plan in place, there is danger that these taxed funds could end up sitting in a personal bank account rather than a business account earning very little interest.

So, what to do?

Companies could invest a part of their profits to benefit from a higher return than cash. This could also help with diversification, with the business potentially gaining access to a wide range of securities. In addition, there would be no tax due on reinvested dividends arising from such investments.

Essentially, this puts your business’ surplus cash to good use.

But before you act, give us a call – corporate investing may not always be suitable, so it is always best to speak to an expert.

Want to explore more complex options for business protection in the face of inflation? Get in touch at hello@firstwealth.co.uk or call 020 7467 2700.

[1] https://www.weforum.org/agenda/2022/05/inflation-rising-economist-explains/

[2] https://www.cnbc.com/2022/05/02/this-is-warren-buffetts-simple-advice-for-periods-of-high-inflation.html

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.