How to insulate businesses against inflation, high interest rates
Hikes in inflation and interest rates depict A constant rise in the cost of doing business in an economy. The rise in energy prices, the increase in the prices of raw materials and transportation costs all constrain the smooth operations of businesses.
Data indicate that businesses find it difficult to access credit to expand operations. Not only does the difficult environment make it difficult and prolonged for the payment of those debts with the various financial institutions, but the high interests on the loans alone, compound the burden to finance individual debts. Being the fulcrum that powers the ecy towards meeting its per capita incomes, the business community strife to meet the demands of the citizenry by surmounting hurdles of inflationary trends and high interest rates regimes by applying a lot of measures that ensure the daily outputs.
The mandate, therefore, lies on enterprises to go beyond the normal standards in operations and pursue excellence, since there is always the potential for profits and the sustainability of livelihoods.
However, because inflation reduces purchasing power, demand for produced goods become low. This affects sales and thereby culminates in low revenues and profits.
The net effect is the tendency to cut wages and lay off some idle hands in order to reduce the cost of operations, when cost-benefit analysis informs that unpalatable decision.
High interest rates also take off the paddle in going for cheap credits and overdrafts that could have eased capital accumulation challenges for increased operations and output, thereby enhancing the supply of goods and services to meet demands.
On the other hand, however, the dangers associated with these setbacks needed to be guided against and businesses must be insulated at all cost to gain monies worth for every capital employed.
Measures to adopt must be prudent and should include adequate resources and skills to match manpower efforts for successful implementation. These efforts must be time lagged with those responsible appraised in that direction to get the most of out of the situation.
To insulate the business, the following should be considered;
Managers facing hard times should employ their finance and marketing departments to have a look at the macroeconomic indicators and sew them according to their output and sales.
They are to identify where they fit in as the quarters have rolled past in the financial year. If statistics show the high rate of inflation and interest rates will correlate with changes in sales and cost of operations, then a second look should be considered in matching operations and sales according to demand.
This is to cut back on waste and loses to stay afloat, else, a continuous dip in performance in terms of sales and turnover, that results in net loses, will plunge the business to wind up.
The marketing department having scanned through the industry should be able to identify a potential market that could be taken advantage of. This should serve the needs and demand of clients.
Invariably, this will fill the vacuum created in the old market and help meet falling sales targets. It will balance the overall profit target in the wake of inflationary periods, where aggregate real incomes of households are reduced.
Industries finding themselves in times of increasing costs and downturns should not put all their eggs into one basket.
If the potential exist for enterprises to channel resources into other areas that can equally fetch incomes to boost profits and maximise shareholders wealth, then management must do all that it can to pursue other ventures in this direction.
The additional revenues that will be generated will ensure the long-term stability of the company. The bottom line, however, is to invest in areas of high yielding returns, that can equally result in profits to ensure monies worth, that balances in both returns and risks.
In as much as looking at other profitable sections to ensure profit maximisation and survival in the midst of recessions and hardships, managers of enterprises ought to foresee that creating additional wealth out of what they normally produce, will be the trump card that sets them apart from their competitors in times like these.
Enterprises should woo their customers by offering packing and transportation for a marginal fee in addition to what they sell. For instance, those selling cosmetics, can add up wigs, weave-ons and scarfs with additional beautification tools and equipment for their clients in a whole package of sales.
Those in the educational sector offering just tuition services, can also provide bookshop services and sell other educational products such as white boards, school bags and school sports equipment for clients on the school compound. These are all to generate additional cash flow for the enterprise to fall on in hard times.
In ensuring enterprises surmount tensions of inflation and high cost of borrowing, management must cut cost. In modeling out the cost-benefit scale, variable costs that do not translate into total revenue but dwindles profits, should be avoided.
Resources should also be used judiciously and a quick audit of all financial resources used up as inputs, should be tailored to see if positive impact were made out of their usage. The nutshell is to see growth of profits in this periods rather than costs.
To round up, business owners must be of the view that, though times might be hard, the objectives of setting up their enterprises should squarely be met.
It should not be the time to throw up hands in despair, but rather taking up the challenge and seeing to the positive side of whatever they might be experiencing.
It is utmost, therefore, to invariably adopt the factors above to stay afloat in maximising the goals of the business agenda.
By J. E Crenstil Jnr/Graphic Business/Ghana
The Writer is a Business and Financial Analyst.
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