How to Make Your Business Inflation-Proof
In the face of the economic challenges brought on by the pandemic, companies have shown a great deal of creativity and resilience over the past two years. As Canada continues on its path to recovery, entrepreneurs and larger companies alike must now face the latest challenge – inflation.
Many Canadians see it that way too Price increases at grocery checkouts and petrol pumps, companies are experiencing increases in manufacturing costs, labor shortages and global supply chain issues. Canada’s inflation rate eased slightly to 7 percent in August, compared to 7.6 percent in July. BMO chief economist Doug Porter says we’ve faced one of the steepest rate hikes in a single year since the mid-1990s. For companies already struggling with labor shortages and supply chain problems, global inflation now poses a threat to their cash flow management and investment returns.
In celebration of Small Business Month this October, here are three key practices that help businesses thrive and stay ahead during tough economic times.
Understand the implications
One of the biggest challenges in managing inflation is that it affects every business differently. In order to create a necessary action plan, it is critical that you understand the unique implications for your business. Some important questions to consider:
- Does my business rely on a single supply chain?
- Am I prepared for a price increase for the materials needed to run my business?
- Am I flexible with my rental and work budget?
Once you understand the impact of inflation on your business, you are able to think proactively and re-evaluate your business plan. For example, if you see increased operating costs, it’s time to introduce inflated pricing to offset the costs. If you start having supply chain problems, look for alternative suppliers.
A steady flow of inventory, consumables, and service providers is critical to your success. If your supply chain is broken or you’ve been relying on a supplier, it’s a good time to look for alternative suppliers.
Prioritize cash flow
When it comes to tackling cash flow challenges (an economic symptom of inflation), assessing the source of your working capital and the amount required to run your business will make you more resilient. Options to consider include operating savings, investment capital, or a line of credit.
A business line of credit provides fast, flexible financing for almost any business need and offers the ability to meet larger expenses like new equipment or digital infrastructure.
Or take your money further by taking advantage of your business credit card. Whether it be cash back, travel points, Rewardor a no fee Card is choosing a credit card that offers perks that best suit your business goals, a wise choice when cash flow is limited.
Build a team
In a time of inflation, it is important that you run your business with thoughtfulness and discipline, including being prepared for market changes. Build a team of advisors—experts in financial planning, accounting, banking, and law—to help you evaluate your business and plan a course of action.
Document any lessons learned that help you run a better business, then implement the changes. Meet with your team at least quarterly to reassess and revise your plan as your business and the market evolve. With ongoing geopolitical challenges beyond our control, the economy will continue to respond and you must adapt accordingly. Similarly, for businesses, the landscape must do the same.
Keep these tips in mind as you navigate your business’ ever-changing environment, and use the resources available to respond accordingly to strengthen your business and ensure financial progress.
Mike Bonner is the Head of Canadian Business Banking at BMO Financial Group, where they help companies optimize cash flow, increase efficiencies and access financing to better serve their customers. BMO’s business banking team offers a combination of industry expertise, local knowledge and a focus on mid-market across Canada.