Surviving and thriving IN UNCERTAIN TIMES
The plight of the UK economy provides the perfect case study in how businesses and entrepreneurs must adapt to the changing financial climate to weather the storms ahead, say Stuart Warner and Si Hussain
I t is difficult to remember a more uncertain time in which to manage or run a business. Politics and economics are conspiring to make the job of the business leader even more challenging. It is however important, more than ever now, to stay optimistic and ready to lead your company through what is shaping up to be a prolonged period of uncertainty. At a practical level, this is the time to take appropriate action to protect the business and ensure its financial stability. If the past 12 weeks are anything to go by, no one will be able to predict what the next 12 months will bring. There are, however, financial trends that will impact business, as outlined below. Knowing what these are, and understanding what you can do about them, will help your business to weather the storms ahead. • Inflation will (relentlessly) gnaw at your margins For many years, inflation has been confined to a topic of discussion best left for the classroom. While it is widely understood that most businesses have to contend with cost increases from time to time, it is important to understand that inflation is different. Inflation is a persistent rise in prices (costs). Cost increases therefore get ‘baked in’ to
negotiations with suppliers, many of which will want to rebase their commercial agreements, thereby reinforcing price increases to create an inflationary spiral. This presents a particular challenge for businesses in price-competitive markets. Such companies must expect high inflationary pressures – around 10 per cent in the UK currently, for example – to continue for at least the next 12-24 months. It is important to work through strategies to accommodate the higher cost environment to ensure you remain profitable. This could include revising product pricing upwards or taking actions to limit cost increases. Can the business lock into longer-term supplier agreements or agree opportunities to lower per-unit costs? It is critical in inflationary times to monitor cash flow like a hawk. Keeping a sharp(er) focus on competitors’ pricing strategies will enable you to act without delay to align your prices, especially where your cash flow may be at risk. While maintaining prices when competitors are raising theirs is often seen as a winning strategy to gain market share, this will only succeed if the business is cash rich or has high margins. It is more likely that a business will be unable to cover the relentless cost rises driven by inflation.
Stuart Warner and Si Hussain are experts in financial training and consulting and are the co-authors of The Finance Book: Understand the numbers even if you’re not a finance professional
40 | Ambition | FEBRUARY 2023
Made with FlippingBook - Share PDF online