It is possible to survive and thrive during difficult economic times. Businesses can take steps to get ahead during a slow-growth recovery and be ready to succeed when good times return, writes Scott Wiltshire, GM, Oracle NetSuite ANZ.

In Australia, while some economists are optimistic that the country may escape an extended economic downturn in the coming year, inflation is expected to impact the costs of living and doing business.

According to the Australian Bureau of Statistics (ABS), the current annual inflation rate in Australia is 5.3 per cent and economists are predicting it will not return to the Reserve Bank of Australia (RBA)’s target rate of 2-3 per cent until 2024.

As consumers compensate for higher prices by withdrawing spending or seeking wage increases, businesses that already feel the pain will be placed under mounting pressure to maintain a healthy cash flow by keeping costs in check.

Here are five steps to mitigate the impacts of inflation

1. Assess cash flow and implement rolling forecasts to anticipate what is to come

With narrowed profit margins putting a squeeze on cash flow, it has never been more important to review where cash is coming into the business and where it is being spent.

Once business leaders have a handle on this, they can ensure accurate projections using a rolling cash flow forecast. A rolling forecast projects numbers for the next month automatically, using the most recent income and expenditure data available.

Armed with the most current data, business leaders can identify and respond to changes in a timely fashion.

2. Perform customer analysis to better understand current and future demand

Customers are being hit with higher prices for food, rent, mortgages and fuel, which leaves reduced cash to spend on non-essentials. As a business, consider which products are luxuries and which are necessities and how this affects customer demand.

An integrated business system with machine learning and AI can predict buyer behaviour and provide accurate insights into future demand. Teams can then bundle or unbundle products, adjust production levels, or alter pricing in response to predicted swings forecast through AI.

3. Evaluate the supply chain (again) to maintain productivity

Many businesses have strengthened their supply chains over the past few years, but inflation is introducing new variables, such as higher prices for supplies and services.

Supply chain mapping can help business leaders identify key suppliers and associated risk factors such as disruptions, financial dependence, credit history or susceptibility to inflationary pressure.

Business leaders should take a closer look at their supply chain partners with a focus on two areas:

• Which supply chain partner’s product or service is most important to running your business?
• Which supply chain partner is most likely to face disruption from their external environment?

Once these partners are identified, business leaders should find other potential suppliers to turn to in the event of a serious disruption to service. Business process software which maintains a central record of information related to each vendor and their circumstances may make supply chain mapping and risk assessment much simpler.

4. Revisit inventory management strategies and tactics to build profitability

With the costs of inventory production and transportation being passed on to businesses, it is the right time to reassess how inventory impacts cash flow and profitability.

Ordering excess stock when demand is cooling increases carrying costs and ties up cash needed elsewhere. On the other hand, having some extra inventory can provide a buffer against potential supply chain issues.

Calculating the minimum inventory needed to reliably accommodate customer demand or supplier delays/outages is one way to reduce the impact that purchasing (and storing) goods has on cash flow and profitability.

5. Automate systems to drive efficiency

With workforce shortages expected to continue and payroll remaining the biggest expense on a typical company’s balance sheet, now is the time to invest in technology that automates manual tasks and frees up headcount for more strategic work.

This approach delivers increased efficiency, improved data quality, and lowered labour costs. In addition, it provides a path for existing workers to gain new skills. Start by finding a few repetitive, slow, and error prone human-based processes and figure out how to automate these activities. For accounting, automated processes might include things like three-way matching, invoice creation and sending customer payment reminders.

Adopting automation ensures the optimal use of human resources and provides some stability as wages rise to keep up with inflation.

Now is the time to look for ways to improve your business fundamentals. These five steps are a few ways that businesses can prepare for – and reduce the impact of – inflation. The earlier these approaches are implemented, the more likely the business is to maintain or build profits in spite of rising costs.

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