Whether or not inflation is in check within the next 12 months, its effect on business revenue and savings right now requires planning and prioritizing. Use this checklist to manage the negative effects of inflation while identifying positive, long-term opportunities for your business.
1. Budgets & Pricing
As the cost of goods and services rise, adjust your previous budget and pricing to avoid unnecessary expenditures and sustain margins. As you adjust your budgets and explore more agile pricing, can you:
- Seek alternative suppliers (e.g. seek competitive levers for key supplies)?
- Renegotiate vendor contracts (e.g. offer incentives/larger volume orders for price stability)?
- Cleanup or accelerate accounts receivables (e.g. hire third-party controller or credit department)?
- Delay purchases (e.g. defer by month, quarter or year)?
- Raise prices strategically (e.g. preferred customer status, temporary surcharges, suspended discounts)?
2. Debt Management
To curb inflation, the Federal Reserve is instituting a series of interest rate increases to the federal funds rate. This affects the prime rate at which lenders are willing to borrow money, everything from equipment purchases to automobiles to real estate. This also affects the interest rate on credit cards. To manage your business debt, can you:
- Payoff credit cards and/or lines of credit monthly?
- Refinance adjustable rate loans or establish new lines of credit now?
- Explore a lower interest rate business credit card?
- Make larger monthly payments to shorten the loan term?
- Save for larger purchases, and time those purchases for tax benefits
3. Tax Planning
Knowing where you stand monthly with your revenue will support better tax planning in the fall when the opportunities to invest in your business can be deductible or depreciated. As you look at tax planning for your business, can you:
- Identify business needs or activities that increase efficiency or qualify for tax deductions and/or credits?
- Schedule a cost segregation study to accelerate depreciation on real estate?
- Rebalance your personal retirement portfolio or seek tax-friendly investments such as converting to a Roth IRA?
- Add more money to a Health Savings Account or pre-tax flex accounts to reduce your personal taxable income?
- Calculate the revenue impact of taxes that do not receive inflationary adjustments (e.g.SALT, payroll, NIIT)
4. Business Reinvestment
When inflationary pressures impact cash flow across the board, individuals and businesses typically try to spend less money. They delay purchases or try to prioritize “need to have” vs “nice to have” investments. The pandemic has stirred up inflation, but also delayed subsequent “belt tightening” due to pent-up demand for consumer goods, travel and experiences. With that timing in mind, can you:
- Identify new sources of future revenue or diversity products and services?
- Conduct market research on competitive threats?
- Maintain credit and cash reserves to sustain your business through market volatility?
- Prioritize technology investments that support modern operations?
- Develop strategic partnerships to share and offset costs?
The battle for talent rages on, and with it the higher costs of wages and benefits.Most business owners experience higher costs to recruit and onboard a new employee than to retain an existing employee. As you experience wage pressures along with inflationary pressures, can you:
- Offer additional low-cost or non-monetary perks and incentives to your team (extra coffee breaks, casual days, 4-day workweek)?
- Rethink benefits for part-time employees through a tax-friendly HRA or LSA?
- Build clear pathways for career advancement at your business through salary scales and job titles?
- Coordinate work-study, apprenticeships and internships with high schools and colleges to build a talent pipeline?
As always, please connect with us for additional guidance.