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%.
The latest report from the ONS shows the Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.8% in the 12 months to October 2021, up from 2.9% in the 12 months to September.
The largest upward contribution to the October 2021 CPIH 12-month inflation rate came from housing and household services (1.23 percentage points), with further large upward contributions from transport (1.08 percentage points) and restaurants and hotels (0.43 percentage points).
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;
- Get rid of Won’t pay customers;
- Review debtors list and chase up overdue invoices (if appropriate);
- 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 and flow chart the main processes in your business (e.g. Sales processing, order fulfilment, shipping etc) and challenge the need for each step;
- Encourage your staff to suggest ways to streamline and simplify processes (e.g. sit down and brainstorm about efficiencies and cost reduction);
- Use ‘bottom up’ budgeting where everyone in the office gives input on areas over which they have control – target a 10% cost saving;
- Review your staffing needs over the next few months;
- Get your members of staff involved in a discussion of likely trading conditions and get their input on reducing costs and maintaining revenues;
- Review your list of products and services and eliminate those that are unprofitable or not core products/services;
- Establish your key performance indicators (KPI’s) and measure them on a daily basis e.g.:
- Sales Leads generated
- Orders Supplied/Fulfilled
- Cash Balance
- Stock Turnover
- Debtor Days
- Gross Profit
- Net Profit; and
- Pull everyone together and explain the business strategy and get their buy-in.
Please talk to us about planning ahead because we have considerable experience with helping our clients with their strategy and sustainability in turbulent times.