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How to Deal with Inflation in Business: 7 Expert Tips to Weather the Storm

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According to recent U.S. Labor Department data, U.S. inflation is at 7.5%, the highest it’s been since February of 1982. The effects of inflation touch all parts of the economy, from consumers to businesses.

When figuring out how to deal with inflation in business, companies need to be strategic. They can’t damage their long-term value but must also cut costs to buffer against current inflation.

Here are 7 tips your business can use when dealing with inflation that will leave it stronger than before.

Tip 1: Heavily Scrutinise Your Spending

When understanding how to deal with inflation in business, you first need to get spending visibility. This means your company needs to be fully aware of all its expenses, who’s spending, and for what purpose. Having high spending visibility holds people accountable and prevents excessive purchases – or purchases that do not further company goals.

If you don’t already, have a clear understanding of costs and operating expenses. Are there any places where you can cut costs to deal with the effects of inflation? Saving even small amounts in a few areas can create a buffer to absorb rising costs (more on that later).

Do this ASAP, even if you aren’t yet feeling the effects of inflation. Your best bet for dealing with inflation is to be prepared rather than to scramble.

Tip 2: Don’t Neglect Your Employees

Losing your best employees is the last thing you need when trying to combat rising inflation. Many companies are raising salaries more than usual to stay competitive and help their people ride out this inflationary period.

One survey found that from 2021 to 2022, the median percentage change for total salary budgets is 3%, where another study found it to be higher at 3.9%. This is compared to salary increases that are historically less than 3% per year. 

Considering the talent shortages in today’s market, you’ll need to budget a more significant increase in salaries to stay competitive. Reducing costs elsewhere can help you reallocate spending to boost these salaries.

If you haven’t already, consider allowing work from home at least some of the time (there are many benefits of flexible work). This reduces commuter costs for employees and can help them save, even if you can’t offer as high of a pay raise. 

You can also consider improved healthcare plans to help employees save on rising healthcare costs. Check out these other essential employee benefits to help you attract and keep the best talent.

Tip 3: Strategic vs. Non Strategic Spending

When figuring out how to deal with inflation in business, you can cut two types of spending: strategic and nonstrategic. You’ll need to determine which categories of spend fall into strategic or nonstrategic.

Sometimes, to combat the effects of inflation, higher-ups can cut spending that impacts the company’s long-term goals. Although this may be necessary to save a sinking ship, you should avoid it at all costs.

Cutting costs in a way that does not align with company values impacts shareholder value over the long term and damages your ROI. Focus on reducing nonstrategic costs and buying intentionally.

Managers and executives can better agree on fundamental financial decisions by understanding what spending falls into which category. They’ll better understand which expenses boost shareholder value and should be prioritised when dealing with inflation.

Tip 4: Avoid Being Highly Liquid

Having liquid assets accessible is a healthy strategy for dealing with financial hardship. However, while you shouldn’t be completely illiquid, reallocating cash is an excellent idea if you’re wondering how to deal with inflation in business. 

Having excessive cash on hand means it’s losing value – as of now, about 7.5% in value. Instead, place that cash into areas where it can grow at a rate faster than that of inflation. You can choose to invest in stocks or any other financial investment that produces returns higher than current inflation rates.

Tip 5: Diversify Across the Globe

When figuring out how to deal with inflation in business, consider the global economy. There are many countries whose global economies do not fluctuate on a 1:1 basis with the United States. Some of these economies include Italy, South Korea, and Australia.

Diversifying into global markets such as these can help protect your company against the effects of inflation. 

Although setting up international operations may be a stretch for some businesses, consider investing in foreign bonds, buying raw materials overseas, or taking other smaller steps to diversify internationally. 

Tip 6: The Small Stuff Adds Up

The small stuff really does add up when figuring out how to deal with inflation in business. Expenses that were trivial before can be reduced to create a buffer against the rising inflation costs. Here are some minor spend categories you can assess:

  • If you pay your own utilities, heating and A/C. Can you better insulate or repair cracks in walls to save on these costs? Consider an utility audit if you are serious about uncovering utility errors and getting refunds where you can.
  • Office space. Do you have more office room than you need? Could you go fully remote? As of 2022, 16% of companies are fully remote and 66% of US employees work remotely at least sometimes.
  • Advertising. Consider prioritizing organic marketing over paid ads in times of rising inflation. Organic marketing may take longer to have an effect, but those effects are enduring. They don’t stop being beneficial the minute you stop paying (like paid ads do).

Especially if you’re a large operation, and even if you’re not, staying on top of these expenses can add up.

Tip 7: Be Transparent When Increasing Costs

The importance of building a relationship with your customers can’t be understated, especially when dealing with inflation. 55% of consumers trust companies less than they used to, yet customers with emotional connections to your business have a lifetime value 306% higher than those who don’t.

When determining how to deal with inflation in business, you want to avoid losing customers. You also want to maintain your reputation as an honest business to increase loyalty. Should you decide to increase your costs to help combat inflation, be transparent with your customers.

You want to ensure loyal customers don’t find out about rising costs when they go to purchase (or after having purchased if they’re being automatically billed). Honesty goes a long way in reducing churn. 

Consider sending out an email or otherwise publicizing rising costs. Provide truthful reasoning about the effects of inflation and how that’s impacting your pricing.

Pricing roles are increasingly important and the market has shown tremendous demand for pricing strategists and alansyst.

Need help hiring for higher-level strategic roles to deal with the effects of inflation? Jennings Executive will help you find the best person for the job. Learn more today!

Figuring out how to deal with inflation in business is challenging, but doing so correctly will help you beat rising costs and come out stronger than ever.

Related: M&A Trends From 2021: What Patterns Emerged?

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