After years of low inflation, it has been a relatively good time for households, wages and most businesses. But with an uncertain economy due to the triggering of Article 50 and Brexit uncertainty, inflation has recently risen to 2.9% in August 2017.
As a result, many businesses will be looking to deal with the inflation rise so it has less of an impact on their stability. But why is this important and what can you do to protect your business from a rise in inflation? We’ve put together some tips and information to help you steady the ship for whatever happens in 2017.
How can a rise in inflation affect your business?
A rise in inflation can affect your business in many ways as costs for your business rise squeezing your margins. This often necessitates having to increase your prices to your customers and so inflation perpetuates.
The government, along with the Bank of England, try to control inflation rates by using certain strategies such as quantitative easing and interest rates. This helps the government stick closer to their target inflation rate of 2% as the common thinking is that anything over this value can reduce the value of money significantly.
For larger businesses and corporations, it is sometimes easier to take the financial hit as they spread the loss by being able to take advantage of economies of scale. However, for small businesses, a rise in inflation is usually taken as a direct hit on profit margins.
How to deal with a rise in inflation
Inflation can be unpredictable and sometimes businesses simply can’t see it coming. But with a solid structure in place and by adapting to the situation, there are ways of reducing the impact it has on your business.
Plan and assess where you can
It can be difficult to plan for a rise in inflation as the warning signs are not always obvious and the inflation rate can rise anywhere from half a percent to 5% in a number of months, dependent on the state of the economy.
For most businesses, all they can do is check their cash flow, streamline areas of the business that need it and check productivity levels to see if this can be improved in any way. Assessing the current situation you are in provides you with the tools to prepare for the future.
Prepare and react
Does your business have procedures in place to deal with a steep growth in inflation? Most businesses have something they can fall back on should an unforeseen event happen, such as an overdraft facility.
After taking advice, if needed, and assessing your situation, you will be in the best place to react to the current outlook for the economy, for your sector and for your business.
As mentioned above, assessing your cash flow is important when you are planning for the future of your business in any capacity. Is your financial information up to date? Do you keep management accounts? Do you need to update your cash flow forecast accordingly as a result of the rise in inflation? Do you have enough cash in your company account and does your account offer you everything you need it to? When big changes happen, preparation is key making this the best time to update, assess and rethink accordingly for your business.
Set up a financing facility
If you feel finances will be tight, then get in touch with us to discuss a financing facility.
Whether you are looking for an invoice financing facility to improve your cash flow, asset finance to buy a new piece of machinery you otherwise can’t afford or you’d like to remortgage your business premise to free up cash which is locked away, we can help.
As 2017 is the year when inflation has begun to rise, preparing your business for the inevitable is vitally important.