Making your business resilient to economic downswings is not a new thing for SME business owners in South Africa. Determining what to do to survive, no matter what the economy is like, is key for most serious business owners.
However, the difference between a prepared response and a knee-jerk reaction by business owners is the fact that prepared business owners engage in deliberate preparation, prior planning, and intentional action.
At ActionCOACH-Inspire our Quarterly Business Planning workshops also called GrowthCLUB sessions, are the main reason why business owners who work with an ActionCOACH Business Coach are better prepared. They are, therefore, more resilient in their thinking and action plans.
Why may you ask? I believe it has a lot to do with spending enough time in the planning process. Developing scenarios or alternate plans of action and thinking them through properly is key to survival and opening your eyes for different possibilities.
I believe that by fully understanding the risks to their businesses as well as the available alternatives, business owners will develop a strategic advantage over other players in the market.
So how do you protect the profit in your business against inflation?
According to the Harvard Business Review studies of more than 5700 global companies have shown that cutting expenses is a vital part of how companies must deal with inflation.
Companies today are scrambling to deal with the effect of inflation on higher commodity pricing, supply constraints and higher wages costs. The Harvard Business Review reported that the USA Producer Price Index (PPI) rose by 10% in the first half of 2021.
I thus believe that as companies deal with inflation, they, should not only consider adjusting their prices, but they should also critically look at their spend and cutting costs as part of managing their businesses in the economic storm.
Management must Manage.
Managing a business effectively requires a well-constructed budget and strong accounting practices, on-time reporting and skilful use of time and resources.
Holding your team accountable to delivering the budgeted numbers, following up, training, and guiding the employees to reach maximum performance is essential.
Intelligent managers know how to systemize routine procedures while humanizing the exceptions.
All companies must prepare for higher inflation in this new post pandemic environment, including the uncertainty of the impact of the war in Ukraine. The HBR states that “Companies will have to cut costs, build scalable business growth platforms and strategically invest in programmes that deliver better and stronger purchasing and pricing capabilities.”
Yes, money is what matters, and you need the best strategies for dealing with money matters as it could make or break your business.
I would also like to highlight the following 6 proven tactics that according to the Harvard Business Review, companies must deploy to achieve their financial goals in these turbulent high inflationary times.
- Create spending visibility – managers must have a high-resolution view of where the money is flowing to. Where is the money spent and who is spending it? Yes, it is important to establish the right accountability levels throughout the business
- Distinguish between strategic and nonstrategic spending– as the business owner you must be careful not to make choices that will influence the companies long term strategy negatively. Prioritise higher ROI investments and out-invest competitors
- Understand the spend drivers – Develop a robust understanding of the real drivers of cost in the current environment. Fully understand the price paid, volume bought and underlying drivers such as transport costs. It’s your money spend it wisely.
- Reduce consumption – companies should measure and understand their spending visibility and create the ability to isolate cost drivers. This focus on spending better could also impact the organisations’ structure and business silos
- Eliminate work – using a clean sheet mindset with Zero based costings is one way to ensure business can reset the way the work is done. Firstly, scrutinise the what and then the how. Clearly distinguish between value added work and non- value added. Its worth looking at your product range and eliminating the products that struggle with profitability.
- Automate or mechanise – this will help free up workers and ensure each person is more effective in creating value. This could include process automation or intelligent document processing like in Xero.
A successful strategy for managing money includes proper auditing of your numbers, setting budgets that are understood and followed by everyone in the business and the proper management of Gross and Net Profit.
Remember always, only profit is the real bottom line!
Your business should not absorb inflationary cost price increases such as higher taxes, more expensive fuel and salary and wage increases. Doing so will seriously impact your businesses profitability.
I believe the best approach is to proactively raise prices and to concentrate on superior customer service to justify the increases and in so doing boost net profits without alienating customers.
I believe that marketing in SME’s is too often done solely from the perspective of the seller. Take a good look at your marketing strategy.
- Does it address the need or pain point of your target market customer?
- Does your marketing spend delivering the same results as any other investment in your business?
Taking a high-level view of your business’s product and service offering can be a valuable exercise for any business owner.
Remember, your products and services offering define the entire business model as well as guide the direction of sales and revenue.
Evaluate your different offerings. Compare and look at the potential and current profit margins and choose the ones that delivers the most money.
Identify which products and services are profitable and focus on selling only those.
Remember you want to safeguard and protect your income, having the right marketing, products, and services your customer wants to buy are essential elements of a great marketing strategy that will attract new customers.
Sign up for our next complimentary Build Your Business webinar or join us for our next GrowthCLUB session – I will show you how you can Increase Profits in Your Business!
Stay inspired and connect with me today to arrange your free one-hour complimentary business discussion.
Yours in great business,