STAGFLATION - WHAT IT COULD MEAN FOR YOU
Stagflation is a combination of stagnant output and rapidly rising prices.
Stagflation has been in the press a lot lately as analysts fear the toxic cocktail of rising prices and slow economic growth.
Post-pandemic supply chain bottlenecks, combined with rising energy prices and the economic effects of the war in Ukraine are seen as the main contributors to the current economic challenges.
The rise in energy prices is already starting to impact the profit margins of businesses. There is also an intense shortage of human capital which is driving up the cost of hiring good people as firms compete to attract the best and brightest talent.
The cost of borrowing is also starting to increase as interest rates creep higher and higher. This will put businesses and individuals under increased financial pressure. The tone from economists is cautious, with further interest rate increases expected later this year. Consumer confidence is falling somewhat and people are tightening their belts and spending less where they can.
All of the above combines to make the current trading environment very difficult for businesses. The best way for businesses to combat stagflation is to find ways to improve productivity. Investing in more efficient software or process improvements can help to streamline your business operations and increase productivity without hiring additional employees.
Businesses should also focus on bolstering their balance sheet. During a period of stagflation, revenue may flatline while costs keep going up. As such, businesses should prepare for tough times by minimizing debt and building cash reserves.
* Prioritise cash flow
* Chase down outstanding debts
* Tighten your payment terms
* Negotiate longer payment terms with your own suppliers, if you are able
Stagflation is a tough environment in which to operate any business, so please get in touch with us if you are struggling.
