Tackling rising costs for businesses: Five areas to focus on to improve resilience

Is inflation really under control? CPI inflation held steady in May at 2.8%, figures released last week showed, despite expectations of a rise. Rising air fares, vehicle taxes and petrol costs were offset by slower food price rises.

For businesses, though, there’s been no let-up. As the ONS’s producer price inflation figures released the same day showed, input prices continued to soar, with inflation up to 8.7% in May from 7.9% the previous month. With output (factory gate) prices up only 4.0% from 4.1% in April, producers are increasingly squeezed.

As The Telegraph put it, “Companies are swallowing soaring costs to spare shoppers.”

It’s a persistent problem. Even last year, before conflict in Iran again sent costs soaring, raw material costs were already a key concern for business. Our Business Owners Sentiment Survey (The BOSS) found that costs were the biggest barrier to growth among the firms surveyed.

To succeed, businesses need to do more than identify the problem. They need solutions to help mitigate rising costs and stay competitive. These will be different for every business, but there are common areas they can look to for potential savings. Here are our top five: 

These should be independent of your sales targets and budgeting process. Planning and realism are essential given that cost pressures are likely to persist. Include downside scenarios, look at the impacts, and consider how your business would respond. Stress-testing your numbers builds valuable resilience and allows you to think about the future with a clear head before pressure mounts. Businesses that do this well build a fully integrated profit and loss account, balance sheet and cash flow on a receipts-and-payments basis, as well as a funds-flow basis.

These tools can deliver significant cost savings, but don’t necessarily assume they’re tools simply to reduce headcount. Instead, the best businesses often use technology to boost margins by redirecting staff’s time and expertise into high-impact work – improving pricing models, building value-added products, increasing customer wins and retention, enhancing brand perception, and so on. This enables investment to continue in lean times and builds your organisation’s knowledge, skill set and capacity to benefit from upturns when they come.

Dust off your organisation chart, overlay your technology stack and all the knowledge you have around your processes and activities. What’s actually needed and what’s just nice to have? Is there scope for a new target operating model that’s more modern, leaner and more cost-effective? Businesses that ensure their operating model is fit for purpose through economic cycles and technological changes are the most likely to succeed.

Compare your business with your competitors, including their margins and price points, and consider new ways customers are interacting and purchasing. Recent technology changes have been rapid and substantial.  Businesses often only learn what others are doing when their own becomes obsolete. Competitor and industry benchmarking across not only financials but operations and sales often unlocks quick wins. The best, though, go one step further, looking at other industries and adopting new ways of working, pricing or routes to market that can help boost profits and cash during tough times.

In business, that’s often the more discretionary spend. Examples include investing in capital expenditure or marketing activity that generate significant value. Conserving cash, boosting profitability or eliminating losses are often the quickest simplest route to greater resilience, but focusing on maintaining spend with a high return on investment can pay off. Consider how you can strip out lower-value costs or activities first, even where these are more integrated into the business and harder to remove. Be tough about ensuring a return on investment, but be aware it may not always be financial; improved customer experiences or employee engagement are valuable returns, too.

Regardless of how inflation figures develop in the coming months, focusing on these five areas can help you build more resilience, get more from your people, and unlock avenues to boost profits and cash. They should help you build a business fit for whatever the future brings.