Managing Through Inflationary Times

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. Unless you’re a child prodigy, you probably weren’t a manager the last time inflation was this high—in 1982; it was 6.16%, last month it was 9.06%, today it is 8.52%.

Inflation consumes cash, eats margins, and lulls managers into a false sense of security as inflated revenues rise A company’s situation can erode very quickly, leading to takeover or bankruptcy. Business owners & CEOs who are fast to react and flexible in their approach can not only survive but prosper in this challenging environment as they seize opportunities afforded by less nimble and smart competitors. Those who react slowly or choose the wrong strategy and tactics will be weakened and may even go bankrupt.

Here are a few critical action items that Business owners & CEOs should focus on to review and manage their businesses through inflationary times:

Communication - The Business owner & CEO, CFO, and CHRO must be very public in the business and constantly share their insights and reasons for many of your decisions. 

You are changing the way your business works, and you are asking your employees to follow you on this journey. To avoid confusion, be transparent by explaining the critical business objectives. 

Cash Flow - During inflationary times cash is king. Finance should set up a dashboard that reports the KPIs that most affect cash flow and update it daily. The essential meetings in every organization should review the dashboard and take corrective action as soon as a deviation from the plan is spotted. Differentiate between strategic and nonstrategic spending.

Working Capital - Set goals for working capital and cash. Do not let inventory and receivables grow or even remain where they are today. Squeeze out every bit of money.

Continuity of the Business - Invest only in activities that ensure the company stays solvent and beats the competition.

Revenue - Grow real volume, real revenue, not inflationary revenue. Master and manage the balance sheet.

Fix your bottlenecks - They may be in production, the supply chain, the hiring process, or the ship to cash cycle. As inflation grows, any waste or friction will become more expensive.

Costs - Now is the time for cost reduction, consistent with the critical business goals. Reassess your spending habits. If inflation is making it difficult to stay within budget, take a moment to reassess your cash flow and where it is going.

Human Resources - if “cash is king,” the employees are “the queen.” They need and deserve the attention of the senior staff. And the CHRO will be under as much stress as the Business owner, CEO, and the CFO.

Compensation plans need to be changed to reflect what is happening in the company, competition, and its immediate business environment. Maximize loyalty and reward programs. HR must ensure fairness and explain the changes so that everyone can understand and accept them.

Automate - In addition to labor cost savings, automation can promote stability in an organization. Technologies like robotic process automation (RPA), workflow, and intelligent document processing can free up workers and make each person much more effective at creating value.

In conclusion, By playing both offense and defense, you have strengthened your company, making it more effective and efficient and have position your company to outpace lea-proactive competitors long after the volatility ends.

No one wants to hear this, but soaring prices on food, gas, and entertainment may be around for a while longer, likely another year or so. That is primarily due to the Federal Reserve's plans to raise rates a couple more times through the remainder of this year. If they see demand as still being high enough to call for a couple more rate hikes, then there is certainly potential that inflation could continue to creep up a bit more from here.

So, what can you do? Keep breathing and do your best to budget accordingly. Things will settle down eventually, though we may just have to get used to higher prices.

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