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8 Strategies to Help Your Business Combat Inflation

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Main Takeaway

With rising inflation worldwide, businesses must stay informed on how to combat inflation to prevent declining profit margins as the cost of goods and services increases. Whether you are a small business owner or the CEO of a large corporation, having the right accounting, tax, and financial strategies can help you navigate the challenges of inflation and emerge stronger than your competition.

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Learn eight strategies your business can use to combat inflation and how Windes business accounting services can help maximize your cash flow.


1. Diversify and Strengthen Your Supply Chains

A strong and diverse supply chain can provide businesses with several benefits to combat inflation, including increased resilience to market fluctuations and a greater ability to negotiate favorable terms with suppliers.

There are several ways that businesses can diversify and strengthen their supply chains. One approach is to diversify the sources of raw materials and other inputs used in the production process. By sourcing from multiple suppliers, your business can reduce reliance on a single supplier and mitigate the impact of supply chain disruptions.

Also, consider using multiple transportation methods, such as air, land, and sea. Varied shipping methods can help your company reduce reliance on a single mode of transportation and provide flexibility when disruptions occur. With recent supply chain disruptions in canals and train union disputes, the risk of using particular supply chains can cost you when shocks occur.


2. Focus on Strategic Pricing

Another strategy to combat high inflation is refocusing your strategic pricing. By analyzing market trends and keeping an eye on the competition, your business can create pricing strategies that help you remain competitive and protect your bottom line.

Strategic pricing may involve adjusting prices in response to changes in the cost of raw materials and shipping or implementing pricing tiers or bundle pricing to optimize profits.

To minimize customer impact, consider gradually increasing prices over time rather than implementing changes all at once. Being strategic with pricing can help you better navigate the challenges of high inflation and see an increase in revenue by changing relationships with customers or clients.


3. Put Resources into Areas That Grow Profitability

To combat inflation, focus on putting your resources into profitable areas. This may include investing in research and development to create new products or improve existing ones, expanding into new markets, or improving operational efficiency through technology or other tools.

By focusing resources on areas that have the potential to drive growth and increase profits, your business can better navigate challenges that arise during times of inflation and see greater profitability. It is crucial to carefully assess where your business’s most significant opportunities for profitability lie.

Windes can help you analyze your financial reports to discover areas of growth and help you determine where to invest your resources.

For instance, the Inflation Reduction Act provides tax credits for companies implementing environmentally-friendly practices like clean manufacturing, fuel, electricity, and vehicles. Understanding this benefit can guide your purchasing and operational decisions to benefit from tax credits and deduction changes to boost your bottom line. These incentives allow companies to stabilize their energy use and lower costs and risks in the long run.


4. Streamline Your Product or Service Offerings

Streamlining your service or product offerings can help you hedge against inflation. The streamlining process may involve eliminating low-margin products or services or consolidating multiple offerings into a single, more efficient offering. By streamlining your product or service mix, your business can reduce costs and improve profitability by reducing production and lowering costs that allow focus on higher-margin products or services. Streamlining can help your company focus its resources on the areas of the business that are most important, allowing you to compete better in a challenging economic environment.

For example, if your company sells electronic health records software with multiple ancillary products, review which add-ons bring in the most profit. Focus on developing and marketing products that already sell well and wait for more opportune moments to push other services. Do the product offerings bring in additional customers that provide higher margins for the business?


5. Build Flexibility into Your Cash Flow Projections and FP&A Process

You must build flexibility into your cash flow projections and financial planning and analysis (FP&A) process. This may involve creating multiple scenarios that account for different inflation levels or other economic variables.

A professional accounting firm can review your business operations and help you implement efficient FP&A processes and accurate cash flow projections to realize higher profit margins during inflation.

By having a range of projections to work with, your business can better anticipate and plan for changes in the market. Your company can consider implementing FP&A tools and processes that allow you to quickly and easily adjust your projections as needed. This can help your business stay agile and respond quickly to changes in the market.


6. Engage in Future Commodities Contracts

Engaging in future commodities contracts can help you hedge against price increases that happen during inflation. These contracts allow businesses to lock in prices for raw materials or other inputs at a future date, providing some protection against potential price increases. By implementing future commodities contracts, your company can reduce the impact of rising costs on its bottom line and better plan for future expenses. If your business is dependent on a particular commodity like pork or corn, derivative contracts can allow for hedging against rising rates by keying contracts to particular published rates like the Federal Funds Rate.

However, there are risks associated with using futures contracts, including the potential for price changes that are unfavorable to the business resulting in a loss within the contract. It is crucial to carefully assess the potential risks and rewards before entering into any futures contracts. Companies should ensure they have the financial resources and expertise to manage futures contracts effectively.


7. Stockpile Inventory for Stability

By maintaining sufficient inventory, your business can reduce its reliance on last-minute production needs and better handle disruptions in the supply chain. Additionally, stockpiling inventory can help your business take advantage of bulk purchasing discounts and negotiate more favorable terms with suppliers.

Stockpiling inventory can also tie up capital and create storage and handling costs. It is essential to thoroughly review your existing inventory and financial projections to determine the best inventory items to purchase in bulk. Perform analysis like supply chain stress tests to understand which items you may benefit from having on hand.


8. Reduce Labor Costs

Reducing labor costs is an excellent strategy for fighting against inflation. Wages and benefits can account for up to 71.8% of your company’s operating costs. Reducing these expenditures can help you save money during inflation and put funds toward other business areas.

To reduce labor costs, consider automation and outsourcing internal processes. For example, implement outsourced accounting and bookkeeping services rather than hiring in-house accountants. You can also consider outsourcing operational tasks like invoicing, financial reporting, and data entry to a professional accounting firm.


Combat Inflation With Accounting Services From Windes

By working with experienced professionals, businesses can get the financial guidance and support they need to navigate the challenges of rising costs and declining profits.

Windes business accounting services can help your company identify cost-saving opportunities, implement pricing strategies, and make informed decisions about allocating resources for maximum profitability.

Additionally, Windes’ team of experts can provide valuable insights to combat inflation by looking into the market trends and economic conditions that may impact your business and help you stay ahead of the curve.

Contact Windes today to discuss your business’s accounting needs and enhance your accounting and tax strategies to maximize cash flow.


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