With inflation at a record high and costs soaring, it’s difficult for many people and businesses to protect their finances and manage their budgets.
A combination of higher energy prices, the knock-on effects of Russia’s invasion of Ukraine, and post-pandemic supply chain disruption have led to these high levels.
Cost pressures on this global scale can feel difficult to confront as a business owner – but there are steps you can take to safeguard your business against these challenges.
Update your budget and forecasts
First of all, you need to know where you stand financially. You might have set a budget at the start of the year, but the real figures could have changed drastically since then.
Run through each line of your budget again, looking at what’s realistic, and what’s likely to change. From there, you can create a forecast, assessing whether or not you’re going to meet your original budget.
In addition to this forecast, it’s a good idea to produce a cashflow forecast. Crucially, make different ones based on different scenarios and assumptions.
If you can see any potential problems or points in the year where your cash balance could be running low, you’ll need to think about how to address these.
Review your pricing
Most of us are well aware of the price increases businesses have had to make in the last few months. If you haven’t done so already, you might find it’s necessary to raise your prices too.
Of course, to keep sales coming in, you’ll need to strike the right balance between meeting your budget and keeping things affordable for your customers.
Reduce costs where possible
As well as looking for ways to bring more money in, you’ll need to look at where you can cut back. Again, there’s a balance to be found – reduce costs too much and you risk damaging the quality of your product or service.
If you can find efficiencies in the way you run things, through better processes or with the support of technology, for instance, you may be able to cut some costs while also improving your work.
Plan your purchases
That said, reducing your costs doesn’t mean refraining from any spending. In fact, if you know you’re going to need to make a large purchase, it might be better to do so before costs rise any further, rather than waiting.
The best approach is to plan thoroughly and factor the cost into your plans, so you’re aware of its effect on your financial position.
Explore financing options
If you’ve taken out a business loan, you’re likely feeling the pressure of higher interest rates on your borrowing costs.
But finance is necessary for most businesses to grow, and you’ll need working capital to handle any financial shocks. So, if your business needs a cash injection, the key is to be smart about your options.
Look at fixed-interest loans, for instance, to avoid increases in the cost of borrowing, and explore options that will give you quick access to credit in emergencies.
Protect your personal finances
Finally, as well as taking steps to manage your business, there are ways to look after your personal finances under inflationary pressures.
Considering your investment options, for example, might offer an alternative to keeping your savings in cash, which is eroded by inflation.
Of course, as with any investment decision, you should seek the expertise of a financial adviser.
You can also look at your regular costs, and assess the impact of inflation and rising interest on your mortgage and your pension.
Although rising rates might be worrying, it’s important not to make any snap decisions when it comes to your personal or business finances. In both cases, make sure you research your options and get professional advice before making any changes.
Talk to us for advice on inflation-proofing your business.