INFLATION BUSTERS— PROTECTING PROFITS AS COSTS RISE
By Phillip M. Perry
Inflation is rising faster than any time in recent memory. Businesses must deal with rapid cost increases by managing cashflow
efficiently and communicating effectively with customers and suppliers. The benefits of inventory reduction must be balanced against the need to maintain critical stock for top customers.
Inflation has taken root. Businesses everywhere are dealing with annualized cost increases of 7 percent or more—the fastest pace in 40 years and significantly higher than the 1.8 percent average of the past decade. Te resulting upticks in operating costs can cause serious damage to the bottom line.
“We're in a very unfortunate situation now,” said Bill Conerly, principal of his own consulting firm in Lake Oswego, Oregon (
conerlyconsulting.com). “Businesses that have always devoted their efforts to serving customers and being productive must also start worrying about covering their costs in the most effective way. Tat means they need to shift some of their focus to coping with inflation.” Te challenge is all the greater for its unfamiliarity: It’s been 30 years since inflation was much of a player in company planning.
Experts don’t see relief any time soon. Tey point to a number of root causes, one of which is energy. “With the cost of oil baked into so many things, it seems we are going to see more significant inflation in the months ahead,” said John McQuaig, managing partner of McQuaig & Welk, the Wenatchee, Washington, based management consulting firm (
mcqw.com). He points to a continuing
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global disruption in the delivery of goods and services as yet another cause. “Supply chain issues tend to create opportunities to raise prices because of the effect of supply and demand. When the former is crunched, prices go up by the nature of the market.”
And there’s yet a third driver of higher costs: a wage spiral resulting from the pandemic’s softening effect on the labor supply.
Forecasting Cashflow
Of all the steps businesses can take to mitigate the bottom- line effects of inflation, the most important is better management of cashflow. Inflation tends to accelerate the drain of money from company coffers, and throttle the flow that comes in. If left unaddressed, these battling trends can gut profits and threaten business survival.
Experts advise looking at the coming months with an eye toward estimating what will happen to cash balances. “Proactively managing cashflow is critical right now,” said Lisa Anderson, president of LMA Consulting Group, Claremont, CA (
lma-consultinggroup.com). Tis can be done
TPI Turf News July/August 2022
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