Businesses Advised To Exercise Caution As They Negotiate The Difficult Economic Climate

With the double whammy of soaring inflation and reduced demand for goods and services as the general public struggle with the cost of living, a leading banking consultant has urged businesses to tread carefully over the next few months and to review their expenditure so that they can make cuts wherever they can.

Navigating An Incredibly Difficult Economic Landscape

Girvan Gault, who is with the Pinnacle Growth Group, has written an article in the Irish News today, and here is part of this very interesting piece below:

“WITH inflation soaring to a 40 year high of 9.4 per cent, small and medium enterprises (SMEs) across Northern Ireland are navigating an incredibly difficult economic landscape, as costs escalate and consumer demand declines in response to the rising cost of living.

“Having spent the past four years working closely to enable business growth for SMEs across the country, I can attest that this is a challenging time for local businesses, as they struggle with decreasing demand, increasing overheads and production costs, disrupted supply chains, lowered profit margins and increased employee wages.

“I would advise businesses to exercise caution as they negotiate the current economic climate and recover from the effects of Covid 19. To maintain stability and growth momentum, SMEs should begin by undertaking a series of reviews to ascertain the current health of their business and to identify areas where expenditure could be reduced.

Consider Other Ways To Access Finance

“At times of high inflation, it is critical for businesses to understand what cash reserves they have and to consider other ways to access finance. I would also suggest that businesses review budgets and sensitise cash flow to reflect the increased variable and fixed costs that have been driven by increasing commodity prices. They should also sensitise turnover and sales in response to reduced consumer demand.

“Taking stock of your pricing structure and profit margins will help you to understand how inflation will affect your ability to break even and it could also be beneficial to review your stock purchase approach. You may, for example, decide to buy ahead of time or simply run existing stock down until prices fall.

“It is also important to review credit terms as cash flow comes under pressure, and to maintain an awareness of the increasing base rate of interest and its potential impact on your business.

“Inflation will inevitably impact exchange rates, so it is critical to ensure that you are aware of how this will impact upon imports and exports. Be prepared to look for new markets and customers and consider diversifying products, particularly non-essential goods.

“You should also ensure that debtor collection is efficient and take steps to minimise any long-standing debt. In addition, it may be prudent to be aware of entering into fixed priced contracts when selling but agree fixed prices when buying.

“If your business is unable to pass rising costs onto the consumer, this will significantly impact upon shareholder value, so it is important to understand how this will affect the net value of the business and its borrowing or buying power.

“Of course, you should also assess internal business processes in order to improve productivity and efficiency, and consider how to offset internal costs, such as the inevitable increase in employee wages.

“Despite the myriad obstacles presented by current economic climate, Northern Ireland’s business owners will be able to survive and thrive with the right guidance.”

If you have a business and you are looking for someone to guide you through this difficult time then please give our offices a ring on 028 3752 2909, we have vast experience in helping businesses of all sizes survive and grow. We look forward to hearing from you.