The Top 5 Ways to Fight Inflation

#2 Invest in Automation, Retention and Hiring

In addition to the cost of goods increasing in this economy, the cost of labor is also on the rise. In the past, you might have considered purchasing machinery to gain efficiencies in your warehouse but concluded that it was too expensive. We might now be at that tipping point where your cost of labor could be more expensive those machines. It’s a good time to be looking at the cost versus benefit of investing in machine automation to see if you’ll save money in the long term. This is also a great way to spend excess cash that is losing value every day that it’s sitting in the bank.  In addition to machine automation, there are also plenty of innovative options for digital automation to consider.

When it comes to employing people, hire slow, fire fast. You don’t want to hang on to employees too long that aren’t working out. You want to also allocate more resources to retain your A players because in this environment, it is even more expensive to hire a new person than it was before. People that are applying for jobs now are asking for significantly more than what people are currently making in those roles. You can also offer other benefits that aren’t wage related like better benefits or student loan repayment programs.

#3 Create a Competitive Advantage Through Hedging

Hedging allows businesses to lock in prices today and create stability, lower risk and increase profit predictability. If you’re using a commodity like steel, grains, soybeans, etc., you could invest in futures contracts. You will lock in a lower price and create a pricing advantage because not all your competitors are taking this approach. They’re going to have to charge more to generate the same profit. For smaller businesses who aren’t ready to engage in hedging, you can still lock in prices by purchasing excess inventory in advance. Make sure you have adequate demand forecasting before buying excess inventory.

Get creative in how you’re sourcing materials for your business and to understand if there is a product or an input that you can replace with something less impacted by inflation. Keep up to date with the inflation rate for the specific inputs to your products as well as the overall CPI and PPI indexes. Strengthen your relationships with your vendors by increasing communication and accountability.

#4 Pay Attention to Profitability of Products, Customers or Channels & Prioritize the Higher Profit Margin Ones

Ask your accounting department to create a dashboard to view profitability based on SKU, Customer, and/or channel – depending on your business model and industry. You will be able to better understand where you are losing money and making money. By focusing efforts on the more profitable customers or items, you’re going to get more cash on the dollar for every sale.

In terms of financing, revisit your capital structure and talk to your bank about opening a  line of credit for working capital at a fixed rate. You may also need to take out a business loan to finance capital expenditures which are cheaper now then they will be in the future. Choosing between taking a loan now before money devalues or waiting until there’s an actual need for the funding can have huge ramifications for your business so make sure to consult with your CFO or an alternative expert.

 #5 Focus on Your Core Competencies Right Now and the Things that Make You a Lot of Money

Go back to the drawing board and really focus on your core competencies. What can you do that you know you can make money on?  For example, you may want to hold off on expanding your business by opening multiple locations and instead focus on expanding your business by increasing your marketing spend on the existing locations. Pivot your strategy to what you’re really good at and what you can make money doing because short term survival takes precedence over long term growth.