Key financial strategies to consider amid high inflation
Though talk of inflation is largely centered on the strain on consumers’ wallets, companies are facing their own share of troubles from the climb in prices. They are being hit with heavy utility bills, a byproduct of the turbulent economic situation that has unsettled energy supplies globally. As paying for power gets harder, business owners are forced to scale down production because it has proven to be too costly otherwise.
Attracting enough workers to show up and get the job done has also come at a premium. In a tight labor market, employers are doling out higher wages with hopes of holding onto workers that were hard to find in the first place.
These factors, along with increased costs for raw materials, can leave a business wondering: How do we manage this rolodex of expenses?
Reduce overhead costs
If electricity is the problem, then conserving energy is a sound next step to confront the current energy crunch. While taking small measures in the near term, like turning off everyday office appliances when they’re not in use, can help support this goal, other long-term plans can curb the impact of the price swings associated with the commodities market. Companies may want to rethink production methods or shift to renewable energy sources like solar or hydropower for benefits that last, regardless of the economic climate.
Restructure talent and sourcing strategies
Recent reports indicate that large companies like Ford Motor Co. and Bed Bath & Beyond are making cuts to their workforce. The move to restructure talent can offset the weight of wage increases while putting a focus on efficiency. With consumer preferences changing, brands can better allocate money to divisions that are in line with innovation, rather than outdated strategies.
In addition to consolidating headcount, the time could be ripe for companies to evaluate their sourcing partners and establish channels that are most cost-effective. Big questions, like where to import materials from — if at all —, should be asked.
Tap into your assets
All things considered, companies may still need extra financial support. The truth is, though, they don’t have to look much further than their own assets.
The age-old technique of trade finance still plays a significant role in managing cash flow today. The financing method releases capital from unpaid receivables, providing a business with liquidity right away.
To facilitate the funding, a business can contract a trade finance firm to purchase their receivables in exchange for cash upfront. Later on, retailers pay back the financial intermediary.
While businesses must meet several criteria to be eligible for a traditional bank loan, they can count on their own invoices for funding under this alternative arrangement.
Energy prices may not be coming down any time soon. But by making incremental changes and considering alternative sources of funding, businesses will be better positioned to build up capital reserves, pay their expenses – and keep those lights on.
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