All this challenges businesses that must get to grips with the universal underlying principles of inflation – principles that are not theoretical but are common to most inflationary periods. By doing this, they will have the right mindset to not only get through the recession but come out stronger at the end of it. Can you explain these key principles? I believe there are five key principles that management should master: Principle #1: Manage your cash There are no ifs and no buts here. Cash is king. Don’t manage for earnings per share or EPS, and don’t manage for artificial revenue growth because this will mean you will measure in terms of inflationary dollars, which is misleading. I firmly believe that, in these times, for the vast majority of businesses, pursuing digitalization is your only choice if you want to succeed.
Companies need to come to terms with this. Principle #2: You’ll need more cash to do the same volume of business The same volume of business you have been doing will need more cash during times of inflation, so it’s important you plan for that by either generating more money, borrowing it, or sharpening your business portfolio of products and customers, which might mean you become smaller. Principle #3: Eliminate the cash traps in your end-to-end value chain Going back to the principles of psychology, it’s natural for managers to want to preserve cash in their company during times of inflation, so you may find they may pay later than usual or not at
all. Keep a lookout for these cash traps in your entire end-to-end value chain, and make sure your accounts receivable department is on top. The same applies to hoarding inventories. Principle #4: Don’t be scared to raise your prices Inflation means prices will go up right across the board. Import prices have gone through the roof, and wages are increasing by 12% annually in some sectors. At a time when 70% of your cost is your people, you need to prepare for your costs going upwards of 40% in the next three years. To recoup some of this, your prices must change now. It’s difficult, but – even if a competitor slashes prices to gain market share, do not sacrifice your cash. Instead, find a way to differentiate – deliver a better product,
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