Preparing for Inflationary PressuresPosted on: May 10, 2022
Every Spring I write about your business frontage, setting up your sales floor for success, and reinvigorating your sales potential. We talk about inventory controls, cash flow analysis, hiring, and setting the stage for success.
This year, with the significant challenges to business, it will be even more important to take a hard look at how you are operating, and make critical adjustments.
At the NSBIA, we support your operating success by sending out 24 marketing emails community wide, we update our spring and fall directories that are published through our alliance with Kamloops This Week, and we promote businesses an average of 50 times per week, (over 2500 times a year). That’s a lot of traction! In addition to that, we advertise for your specials, your sales, your hiring needs, and your special occasions. We coordinate giveaways and contests and run an average of 750 newspaper and radio ads a year, in addition to announcer mentions and social media posts media run.
All this marketing sets the foundation for your success, but what are you doing to build on this foundation and to maximize all this potential? As an entrepreneur, I don’t have to tell you that there are some things beyond your control, such as taxation. However, there are also many ways to insulate your business from the potential impacts of inflation, supply chain issues, employee capacity and wage raises.
Let’s look at some key operational questions to help manage some of your costs and reduce impacts from inflation.
Question One: Is everything working?
Equipment necessary for our organization to function is critical to our success. Are your tools, equipment or other operational needs (software, IT, etc) met and maintained. When your equipment, tools and facilities are well maintained, they cost less to operate, operate more effectively, and you can lengthen the time between replacement or upgrades.
Question Two: What can you combine or eliminate?
Often when I assess a new client I ask “what needs to change?” The first step in this process is to understand what is no longer serving you, that you do because you’ve always done it. This could be a service, a menu item, a part, or something where profit margins are slim, and volume is low. By examining what you offer and eliminating the low profit items, you increase room for the higher profit ones and can focus your marketing efforts.
Question Three: Where does it come from and are there better alternatives? While global supply chains are attractive due to the reduced cost of manufacturing in developing nations, today’s supply chain problems highlight the lack of domestic production options. If you sell, manufacture, or assemble items for sale, then its time to look at your domestic supply chain options. Yes, an item may cost more, but the lag in international shipping may mean you can ramp up to higher volumes, because you are able to source parts or items locally/nationally. In other words, you can make up in volume what you lose in savings.
Question Four: How’s your cash flow?
Businesses have had to face economic crises and uncertainty over the last couple of years. This has led to increased loans, lines of credit, and floating credit balances.
NOW is the best time (if you haven’t already) to look at your credit situation and consolidate as much as possible. The simplest rule of thumb when looking at cost of borrowing against cash flow is; for every dollar you borrow you have to make 2.x dollars more; one for the pay back, one for the current operation and “x” to pay the interest.
Cash flow is enhanced when you have fewer, controllable liabilities. Call your banker and consolidate and lock in your repayments, to create greater cash flow certainty and reduce risk to your organization.
Question Five: When was the last time you shopped your utilities?
Every business requires supports from outside: gas, heat, telephone, cable/internet. NOW is the best time to shop those services and find the best deals. Play utilities against each other if you can.
I’ve found that a little bit of work at the front end of a relationship can save you thousands through the course of the contract. For suppliers like cells and internet, always shop before the contract expires, to allow you time to pivot to a new provider without experiencing down time.
Question Six: (for restaurateurs) Did you Combine, Streamline and Simplify?
Many restaurants looked strategically at their menus trough the last two years, streamlining the number of ingredients required, minimizing menu sprawl, and maximizing use of each ingredient category. This consolidation of items reduced the need for so many item categories and the higher core ingredient volumes usually come with a reduced volume pricing, hedging the core food costs and maximizing efficiency in your kitchen line.
My final thought, as we face even more challenging market forces, it is imperative that you start to look at your business with a creative, critical, and increased productivity lens. What you do today will set the stage for the next few years.