The cost of living has surged at its fastest pace in almost 10 years, with the Consumer Prices Index (CPI) reaching 4.2% in the year to October. It is primarily due to higher fuel and energy prices but the cost of second-hand cars and eating out also increased, the Office for National Statistics (ONS) have said.
Inflation is up since Covid restrictions ended this year and the economy reopened. The Bank of England says it may have to raise interest rates in the “coming months” to tackle rising prices. October’s reading is far higher than the 3.1% rise recorded in the year to September and more than double the Bank’s target of 2%.
What does this mean for businesses?
Rapidly rising inflation can mean consumers are more cautious about making discretionary purchases and it’s a good idea to avoid sudden price rises that encourage consumers to look around for cheaper alternatives. A gradual plan for price increases is probably a more sensible option for businesses.
Inflation will also affect the prices you pay for stock and other expenses, so now is a good time to reflect on your stock levels and consider alternative sources of supply and review the profitability of your products, goods and services to ensure they are and will remain profitable.
Clearly, in these uncertain times, it is a good time to plan ahead and here are a few ideas to help with remaining resilient:
- Review your Budgets and set realistic and achievable targets for the remainder of 2021 and 2022;
- Review your debtors list, chase up overdue invoices, and get rid of ‘won’t pay’ customers;
- Make sure your terms of business contain explicit payment terms;
- Assign responsibility to one individual for invoicing and collections;
- Agree extended payment terms with all suppliers in advance;
- If appropriate, review banking facilities and discuss future needs;
- Put extra effort into making sure your relationships with your better customers are solid;
- Review all your business processes and activities to see where you could make cost savings, getting input from staff at all levels of the business.
If you are concerned about how inflation may affect your business, please talk to us about planning ahead. We have considerable experience with helping our clients with their strategy and sustainability in turbulent times and will always do our best to help you.
