How to Make Your Business Inflation-Proof
Pivoting through the economic challenges brought on by the pandemic, businesses have shown a great deal of creativity and resilience over the last two years. As Canada’s road to recovery continues, entrepreneurs and larger businesses alike must now confront the latest challenge—inflation.
In the same way many Canadians are seeing price hikes at the grocery checkout and gas pumps, businesses are experiencing a spike in manufacturing costs, labour shortages and global supply chain issues. In August, Canada’s inflation rate dipped slightly to seven per cent, down from 7.6 per cent in July. BMO’s Chief Economist, Doug Porter, says we’re facing one of the steepest rises in interest rates in a single year since the mid-1990s. For businesses that were already navigating labour shortages and supply chain issues, global inflation now poses a threat to their cash flow management and investment returns.
Here are three key practices to help businesses get ahead and stay ahead during tough economic times.
Understand the effects
One of the biggest challenges in navigating inflation is that it affects each and every business differently. To make a necessary plan of action, it’s crucial that you understand the unique ways your business will be impacted. Some key questions to consider:
- Does my business rely on a single supply chain?
- Am I prepared for a price increase on the materials required to operate my business?
- Am I flexible with my rent and labour budgets?
Once you understand the effects inflation will have on your business, you’ll be positioned to think proactively and re-evaluate your business plan. For example, if you experience an increased cost for operations, it’s time to put inflationary pricing in place to offset costs; if you begin to experience supply chain issues, source alternative suppliers.
Having a steady flow of inventory, supplies and service providers is crucial to your success. If your supply chain is interrupted or you’ve relied on one supplier until now, it’s a good time to line up alternate vendors.
Prioritize cash flow
When it comes to battling cash flow challenges (an economic symptom of inflation), evaluating the source of your working capital and how much you need to operate your business will position you for resilience. Options to consider include business savings, investment capital or a line of credit.
A business line of credit offers quick, flexible financing for just about any business need and provides the ability to handle larger expenses such as new equipment or digital infrastructure.
Or make your money go further by taking advantage of the incentives offered on your business credit card. Whether it be cash back, travel points, rewards, or a no-fee card, choosing a credit card that offers perks to best suit your business goals is a smart choice when cash flow is limited.
Build a team
During a period of inflation, it’s important to be deliberate and disciplined in how your business is managed, including readiness for market changes. Build a team of advisors—experts in financial planning, accounting, banking and law—to help assess your business and plan a course of action.
Document any lessons learned that will help you run a better business, and then implement the changes. Meet with your team at least quarterly to re-evaluate and revise your plan as your business, and the market, evolves. With ongoing geopolitical challenges out of our control, the economy will continue to react and you will have to adjust accordingly. Just as much, the landscape for businesses must do the same.
Keep these tips top of mind while navigating the ever-changing environment of your business, and use available resources to respond accordingly to strengthen your business and secure financial progress.
Mike Bonner is the head of Canadian business banking at BMO Financial Group, where they help businesses optimize cash flow, increase efficiencies, and access financing to better serve their customers. BMO’s business banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout Canada.