As a measure of the rate of rising prices of goods and services in an economy, inflation occurs when prices rise due to increases in production costs, such as raw materials and wages.
The UK has seen the fastest price inflation since the early 1980s, as broken supply chains coincided with high consumer demand for used cars, household products and construction materials to name a few. The supply strains caused mostly by Brexit and the Covid-19 pandemic have led to a surge in demand for products and services such as fuel and energy which has meant the cost of living increased by 4.2% in October, the highest rate in almost a decade.
With continued issues with supply chains, inflation is set to rise further. The Bank of England expects the CPI (consumer price index), which is a measure of inflation, to peak at 5% in early 2022.
How does inflation affect me?
Taking into consideration the below points, it’s advisable to start budgeting and forecasting for the year ahead now so that you can identify where to manage costs and find efficiencies.
- Surge in energy prices
- Potential for interest rates to go up
- Staff shortages as minimum wage does not meet employees cost of living
- Your personal cost of living increases
- Cost of borrowing will increase
- Prices for raw materials are going up
It is imperative you build resilience into your business model to stand strong against any further blows to your finances.
With the right tools, information and support you can address the issues at hand by taking action. It is essential you are equipped to manage your business position.
A measured approach is advisable when monitoring cash flow and operational costs. Practicality must be at the forefront of the plan when forecasting, looking at order patterns, budgeting and scenario planning. You will need to look at how a potential change to your supply chain, staffing or pipeline could impact your business and ensure it doesn’t come as a bolt out of the blue enticing a knee jerk reaction.
What else can I do about it?
It's important to not only have those essential conversations within your business about how you will face the potential impacts of inflation, but it is also important to speak to your accountant. Keeping the lines of communication open will help you feel supported, and, with financial experts in the loop you’ll have the added benefit of their years of experience in facing these types of challenges to businesses. We regularly give advice and support to our clients so that they know they are not alone and help is always on hand.
Did you know? Some accountants can act as a CFO for your company, especially useful if you are a small to medium sized business who are likely to feel the pinch when it comes to a disrupted cash flow or hiking prices.
At Blue Rocket, we can act as your Finance Director. We will work with you to define the Key Performance Indicators that underpin the success of your business.
We’ll create, manage and update a rolling 12-month three-way forecast of profit and loss, cashflow and the balance sheet so you always know what the future financial performance and position of the business looks like, based on what we already know today through committed sales and costs. This service is about bringing the future into the present so you can act upon the knowledge gleaned.
If you would like to speak to us at Blue Rocket to find out how we can help support your business in the year ahead, call us on 01322 555442 or make an enquiry.