How Is My Business Affected By Inflation?

By November 15, 2022 November 25th, 2022 Insights

There is no doubt that the economic situation in the UK is pretty dire at the moment. Now that we have come out of the other side of Covid and a difficult few years, we all hoped that things would get back to normal but that certainly isn’t the case. Some are saying that we are already in a recession while others are saying that we are almost there but either way, we have all heard about inflation.

The current economic climate is going to impact businesses and the likes of wage rates, capital expenditures and hiring practices will all be influenced by the amount that consumers are spending. So, inflation is likely to become a challenge for your business but how will it impact you and how can you handle it?

What is Inflation?

Essentially, inflation relates to a consistent and widespread increase in prices. The Consumer Price Index (CPI) is used to monitor inflation by determining how prices move in relation to a basket of items and services over a certain period. As a result, inflation is then given as a percentage and at the time of writing this, it is sitting above 10%.

Inflation and How It Could Impact Your Business

A rise in the cost of services and goods goes way beyond the impact it has on the consumer. This is because employees demand more money and so, wages will rise in order to follow the increasing prices. 

In addition to this, businesses will then feel pressure when it comes to suppliers as they have to pass on the extra costs associated with materials and products. There might also be a shortage in materials which can also impact prices and there can also be supply chain issues. Furthermore, employee shortages can also prove a problem as they leave to find better-paid jobs. With this in mind, what can you do to ease some of the problems that come with inflation?

A new break even analysis should be carried out to determine whether an increase in prices will lead to improved profits. One thing to consider is that customers might have already become used to paying your usual prices, so you should communicate with them to inform them of your intention to raise prices and the reasons for it.

Sharing the workload

One area in which you can save money is to look at your current spending. There might be some areas where you can cut costs that are unnecessary while you might be able to work more efficiently. It might be difficult to find areas within your business that you can trim but adopting lean manufacturing concepts could benefit you.

The situation is rather precarious at the moment and there are many different reports from experts detailing their predictions so it can be hard to know what to expect. However, if you update your projections and amend your strategies, you could find that you can ride out inflation and bring your business out the other side when this current economic crisis passes.

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