Inflation Busters (CONT’D FROM PAGE 28)
Board Converting NEWS INTERNET DIRECTORY
on a case-by-case basis. “Generally speaking, it’s a good idea,” said McQuaig. “The danger is the possibility of run- ning out of cash if you do not have enough working cap- ital.” McQuaig gives the example of a company installing irrigation systems. “If they know pipe is going to go up in price because oil is a big component, and they see supply might get pinched, they might stock all the pipe they need for a year. But they won’t get back the money tied up in pipe until they receive it from their customer. They might end up in a situation in which they can’t meet their payroll.” Companies can obviate such difficulties by running month- ly or weekly cashflow forecasts. Raising Prices Asking more for goods and services is another way to adjust cash inflows. “Businesses are very hesitant to raise prices when they don’t have to,” said Conerly. “And they often get push back from their salespeople. But the fact is, buyers are accustomed to seeing price increases in infla- tionary times.”
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The amount of increase can be based on the compo- nents of production, noted McQuaig. “If you are a builder of custom homes, do you have an inflation index in there in case your costs go up? Prices for lumber and other signif- icant items have been varying all over the map. If the time frame is a year to build a house, how did you price it at the front end to make sure that you were covered for inflation on the back end?” Price changes must be carefully communicated. “Give the white glove treatment to tier one customers by reach- ing out and explaining how your costs are rising,” said Beaver. “Communicate to them that the price rise is only temporary.” One approach is to tell your most important customers that you are absorbing 20% of the price in- creases and passing along the other 80%. Another is to separate out any fuel charge increases from the delivery costs and explain you are only passing them along. “A company will have more leverage to raise prices if it has offered great service and maintained inventory.” Above all, avoid delay. “Businesses are most successful at raising prices when they do so quickly,” said Anderson.
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30 May 2, 2022
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