Inflation occurs when currency gradually loses its value, causing a general increase in prices. Clearly, this phenomenon has a negative impact on consumers’ lives; however, it is also possible to observe its effect on the management and growth of a company: inflation can reduce investments, compromise medium and long-term financial planning, and affect company profits.
In this sense, it is important to understand the impacts that inflation can have on your company and how it can interfere with the “health” of your business. We are facing a scenario where inflation is quite high. In other words, it reduces consumers’ purchasing power and, as a consequence, a business ends up selling less and having higher associated costs.
Inflation in business increases the costs of raw materials, which consequently raises the expenses of manufacturing products, increasing their prices as well as the costs of suppliers and the entire production chain.
This represents the most basic scenario for a company during a period of inflation; however, there are other factors that also change. With rising inflation, a company’s internal expenses such as electricity, water, and internet also increase. Inflation also impacts an organization’s employees: the lower the revenue, the more difficulties the organization will have in adjusting salaries.
How to Overcome the Effects of Inflation
New scenarios require new ways to explore business opportunities. Or, at least, they require ways to navigate less positive periods. Therefore, it is essential for companies to prepare for market fluctuations. Do you know what you should consider to improve your business’s efficiency?
Analyze the company’s situation: A thorough analysis allows you to make better negotiations, whether it’s prices with suppliers, rates and financing, or anything else that weighs on the company’s budget.
Expense control: It is necessary to effectively control the fixed and variable costs of your business, understanding which ones are directly linked to revenue generation. This way, you can identify which expenses can be cut and which are worth maintaining.
Efficient stock management: It is essential to maintain good stock control. Avoid overstocking materials. Since there is a reduction in purchasing power and an increase in product prices, it is not advisable to have large expenses on materials. This will only result in idle and depreciating capital.
Postpone investments: Do not make risky investments or take out loans that are not urgent. Investments should only be made if they are truly essential to the business and if they fit within the previously established budget.
Use of technology: Automating processes through the use of new technologies can help you control the impact of inflation on your company. This way, you won’t have to waste time on repetitive and bureaucratic tasks, allowing you to focus as much as possible on your business’s productivity.
Can Digital Solutions Reduce the Impact of Inflation?
Inflation presents various risks for companies. For this reason, it becomes necessary for them to adopt measures that compensate for these risks. The more inflation impacts, the more threats will exist for companies that do not keep up with the digital innovation process. With increasing pressure on profit margins, companies will face difficult decisions regarding expense reduction, price increases, and negotiations with suppliers.
And although priorities differ from business to business, it is common for all to want high levels of productivity and reduced production costs. Through the implementation of new technologies, these two points will be ensured as they can direct the team to tasks that truly require attention and contribute most to increasing a company’s efficiency, while also having access to precise data analyses that will promote infallible decision-making.
Invest now in a digital transformation for your company. Ensure that you will continue to thrive, even during periods of greater economic uncertainty. Contact one of our consultants to find out how to do it.
