Is External Pressure Impacting on Business Investment Decisions?
The media has been filled, over the past weeks, with the bleak news that UK inflation is at its highest since 1992 when it hit 7.1%. The focus in the news is typically on the consumer and the tough decisions they will have to make around the pound in their pocket. However, consumer spending also impacts businesses both in terms of sales and margins. Businesses are struggling with rising costs of employment, mass resignation, national insurance increases and rising cost of energy and materials. With all this stress on cash flow, is external pressure impacting on business investment decisions?
It probably is but arguably, shouldn’t. Here’s why; investing in assets which help you streamline your business and decision making now will help you through the tough year (or two) to come. Businesses investing in growth during difficult periods always accelerate faster when turbulent situations end.
Low Consumer Confidence
The rise in inflation will hit consumer confidence impacting on your business sales. Add to that, the competing pressure of rise in raw materials making inventory costs squeeze businesses further. The rapidly rising price of materials and energy (not to mention the ongoing impact of Brexit and the costs of shipping goods) might seem like a perfect storm. However, scenario planning can help you understand the impact of these price increases before they hit your bottom line. By running your anticipated increased costs through a robust planning and budgeting tool, you can accurately forecast every scenario – from best to worst – so you have a clear line of sight on what to do.
Price Increases May Not be the Answer
The answer isn’t as simple as increasing your own prices in line with inflation. Small but frequent price increases might seem like the most obvious way to keep consumer confidence in your product or service, but that depends largely on your sector. If you operate in a retail or food & drink environment, you will also need to consider the cost of reprinting your price list every couple of days or the staff costs involved with manually changing all the pricing on the shelves (how much more frequently are we seeing “market price” on a price list these days?). You might find any incremental profit swallowed up in effort and other associated costs. A rapid rise on the other hand may turn some of your customers away.
Your planning and budgeting tool should help you to understand each of these scenarios to afford you to take the most reasonable and level-headed approach to price increases in a way impacts less on profit.
Just In Time Inventory Management
Because of the increase in energy and raw materials, you might find your inventory management needs tightening. Operating a “just in time” stock management model might be the best way to ensure you are not carrying too much in raw materials or finished goods. A just in time model means that if the current situation is reversed, in say a period of deflation, you won’t be faced with selling all your excess stock in a “fire sale”, further compounding losses.
Good inventory management is the ultimate balancing act. A robust stock management system will help you keep control of the competing demands of inventory management, financial management and customer management. Matching costs with revenue to help you turn a profit.
To talk to someone about how world class enterprise software can help you navigate the challenges of 2022, get in touch.
Written by Emma Stewart – Sales & Marketing Director at CloudTamers.