Top Five Tips to Help Your Business Cope With Rising Inflation

April 28, 2022

For the first time in decades, inflation has become an urgent concern for companies of almost all sizes in the US. The annual inflation rate in the US accelerated to 8.5% in March of 2022, the highest since December of 19811.

In addition, In the first half of 2021, the producer price index (PPI) rose 10% in the G7 countries. The PPI measures the prices of goods immediately post-production and serves as a critical indicator of the pressure facing companies. The last time the world saw a similar bump in PPI was in the first half of 2008.

Although no one can be sure how high inflation rates will go, most economists agree that inflation will continue to rise in 2022. Here are five steps you should be taking right now to try to protect your company from rising inflation.

Tip 1 – Sweep extra cash into interest-bearing accounts
For over a decade, interest rates have been so low that whether we kept our cash in a regular or interest-bearing checking account made little difference. However, in order to combat spiraling inflation, the Fed will undoubtedly soon be raising interest rates, with projected rates that may rise to as much as 2.75% by the end of 20232. That’s certainly nowhere near the levels we saw in the early 1980s but still significantly higher than we’ve seen in many years. As rates do start to increase, you should make it a practice to start sweeping extra cash into interest-bearing certificates of deposit, money market, savings accounts, and even some bond funds because the earnings will start to make a difference.

Tip 2 – Improve spending visibility
As the term implies, spending visibility means making how your company is spending as completely transparent as possible. Spending visibility gives both a detailed and holistic picture of how money is moving through your company. It enables managers to fully understand where money is spent and who spends it. In an inflationary period, it is critical to establish repeatable, end-to-end, actionable visibility in each cost category and business process. In a very real sense, spending visibility is the foundation for all other inflation hedge efforts.

Tip 3 –  Reduce consumption wherever possible
With increased spending visibility, companies can tailor their approach to match the inflationary environment. For example, even if companies aren’t able to buy better due to supply chain and producer pricing pressures, they can make sure that they spend better. One way to spend better is to reduce consumption. Consume less by zeroing in on the costs that can be completely eliminated because they cannot be justified in an inflationary environment, and also focus on expenditures that can be reduced or eliminated by doing the work differently.

Tip 4 – Raise prices strategically
An initial knee-jerk reaction to inflation is to raise prices. But, before you enact across-the-board price increases, instead raise prices strategically by targeting your price increases on specific product lines where your margins are most affected and where customers are most likely to be amenable. Also, think about the practice of “shrinkflation,” where you deliver slightly fewer products or services for the same price.

Tip 5 – Buy what you can while you can
Buy low, sell high is a basic financial tenant. For those businesses that have access to capital and bank loans, it is prudent to buy the core materials they need for their businesses now in anticipation of continued price increases in 2022. They’re also investing in property and equipment, which are assets that historically keep pace with rising costs in inflationary times.

How AbitOs Can Help  
These are but a few strategies to help your business weather the current inflation storm. If your business is being severely impacted by the rising cost of doing business in the current economy, contact us. Our financial advisors would be happy to develop an inflation mitigation strategy tailored to your specific industry or operation.

AbitOs specializes in the unique accounting needs of high net-worth individuals with international lifestyles as well as for entities doing business in LATAM and across the globe. Coping with the historically high inflation rates can be challenging. If you would like to benefit from our expertise in these areas or if you have further questions on this Alert, do not hesitate to contact us.