According to a survey from IPSOS, inflation has been the number one global concern for the last five months. Each business experiences inflation impacts differently and business leaders should prepare for a range of scenarios associated with inflation-related challenges. It is unclear when inflation will peak and few business leaders have experienced anything similar over their tenure.
Businesses are impacted by inflation in two key ways depending on the industry:
- When inflation rises, the purchasing power of consumers decreases, meaning lower sales numbers and lower total revenue of the business.
- When prices increase, businesses experience higher cost of production. Central banks and most economists attributed the sky-rocketing costs of shipping, supply chain disruptions, erratic demand, and international business desynchronization due to the chaotic pattern of COVID19 outbreaks in the past 2 years.
Be prepared for changing conditions
- In the times of inflation, it is important to reevaluate the current industry positions and the existing business dynamics within the sector. So a nuanced understanding of industry context is vital for the planning and strategy. Tracking markets and obtaining direct industry insights is also important. See how we can help.
- Proactively address supply chain disruption. Each business has its own supply chain risks and challenges. Although, it’s always good business practice to have a diverse, resilient supply chain. Also, stockpiling critical supplies that have a low holding cost can help prepare your business for increased demand, wild price fluctuations and supply-issue delays.
- Evaluate the capital structure. Financial plans that worked during the last decade may be too risky for the inflation period. Understanding and restructuring your mix of equity shares, preferred shares, bank loans, short-term credit, supplier credit, and convertible debt would be the key.
- Restructure the product portfolio. The whole idea behind product restructuring during inflation is to cut costs and maintain profitability in a slowing market. Productivity and efficiency are what enable an economy to emerge stronger from an inflationary period, and it’s the same for each business within the economy.
