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Fight inflation

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What can you do to fight inflation within your company?

Inflation has become one of the major macroeconomic problems in many countries and is now reaching levels not seen since the 1980s.

Everything suggests that high inflation is here to stay, due to the excessive increase in public spending and to the excessively timid efforts of central banks to reduce it through interest rate increases. But this new scenario is a serious problem for companies, despite their efforts to incorporate price increases into their contingency plans.

Demand remains strong

Even though we are in a slowdown, demand remains robust as government spending continues to run rampant and it seems that most governments are only thinking of solutions that will further increase budget deficits. Increasing sales volume must therefore be one of the main thrusts of business strategy.

One of the options for increasing the volume of sales can be to increase the added value of our product so that the price increase is not caused by inflation, but rather we take advantage of it to provide it with those characteristics that make it better in the long term; in other words, instead of maintaining the price, it is better to gain market share with higher prices and a better product.

The other option, that of maintaining prices, only makes sense if it is done within a plan to increase market share through marketing actions that compensate with higher sales volume the lower margin per unit sold.

Cash management is essential

In a context of high inflation, the longer the collection period from customers, the greater the effect of inflation on business margins. The value of money is not the same today as it will be in two months’ time. To be exact, with an annual inflation rate of 8%, a two-month delay in collection means 1.3% less income; collecting in 180 days means receiving 4% less money.

In other words, the efficiency of invoicing must be improved and the average customer collection period must be lower than the average supplier payment period. To this end, a policy of, for example, establishing discounts for prompt payment or volume can be established.

An alternative wage policy

As inflation rises, so does the pressure from employees for higher wages. And this translates into higher costs, often resulting in a significant cut in company profit margins.

That’s why it’s time to offer a range of benefits to your employees that go beyond monetary wages. In times of telecommuting, it may be the ideal time to explore all the opportunities offered by this new model, through salary in kind or other bonuses that do not require so much increase in costs.

These benefits for workers must necessarily be outside the base salary, so that for the following year they do not form a basis from which to start when calculating the salary. In other words, if employees are given a public transport pass because of inflation, this must be shown as an extra inflation supplement. If in a year (or two or three) inflation is brought under control, this bonus also disappears.

 

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