The latest inflation figures were shocking, but really just told us what we all know, that costs are going through the roof.
The Australian Bureau of Statistics recently released the March 2022 CPI figures. The headline was that inflation for the twelve months is at 5.1% across Australia, but in Western Australia it’s far worse at 7.6%. In bad news for households, the biggest increase was in non-discretionary goods like fuel, health, household and education. For the March quarter alone, WA prices rose 3.3%.
Consumer confidence immediately fell by 6% following the release.
Business owners are being hit on several fronts. Rising costs will challenge many small businesses. Add to this a serious skills shortage, supply issues, escalating interest rates and plummeting consumer confidence and you’ve just about got the perfect storm.
It can be difficult for small businesses to increase their prices to compensate because they often have intense competition from larger competitors.
Some factors are beyond the control of business owners but the challenge is to identify what can be contained, even if it initially seems small or insignificant.
The first thing to look for is unnecessary expenditure. Almost every business has something in this category, whether it’s a forgotten software trial subscription, some excessive entertainment costs or a work vehicle that’s more about form than substance. Locate these and eliminate them.
The next step is to eyeball essential expenses and find ways to shrink them. Are you getting the best interest rate or merchant charges from your bank? What about insurance, software, IT services, phones and maintenance contracts? The best way to approach this project is to take a deep dive into your general ledger and question every significant supplier relationship. If nothing else, service levels might suddenly improve as a result of the enquiry.
The third stage is to look for efficiency gains. Don’t blindly do what you’ve always done. Converting to electronic communications can save a small fortune in postage. Creating an on-line ordering system saves the disruption of taking phone calls and improves accuracy. What about putting solar panels on the roof to reduce power costs (or better still, talk your landlord into paying for it)?
Unless staff are excess to requirements, HR should be just about the last cost you trim. But if you have inefficient or under-performing staff, move them on and replace them with someone that wants to contribute.
Another cost that should not be cut is marketing, but review the effectiveness of your marketing spend to ensure you’re getting value for money.
This won’t be the last inflation shock or interest rate rise and the sooner you take action the better positioned you’ll be to manage the impact.
Author: Mark Douglas