Rising costs and weaker demand can squeeze cash and margins at the same time. Review pricing, supplier commitments, customer payment behavior and a short-term cash forecast before making changes that are difficult to reverse.
What is inflation?
An excellent definition from the European Central Bank:
In a market economy, the prices of goods and services change. Some prices rise, others fall. Inflation is a general increase in the prices of goods and services, not an increase in the prices of individual products. Because of inflation, you can buy less for one dollar than you could buy for the same amount yesterday. In other words, inflation causes the value of a currency to fall over time.
What is stagflation?
In layman’s terms, stagflation means slow economic growth and/or stagnation and high inflation. It can last longer and recovery is more difficult. One of the solutions is to raise interest rates to lower inflation, but then there is a risk of recession.
What is a recession?
We speak of a recession when the national economy records negative economic growth in the last two quarters. In layman’s terms, in a recession, citizens buy only the bare necessities and start saving.
How can you do business under these conditions?
Working with our customers over the past two years, and after the initial shock of the Covid crisis, we have moved to the strategy of increasing inventory, expanding the number of suppliers, and finding alternative materials. Increasing inventories is contrary to all previous efficient business strategies, but companies have chosen this model in order to continue operating. It’s just that they have not looked at price so much anymore, they have just taken the goods that we have and have not stopped doing business.
Of course, that has its limits, both in terms of liquidity and storage capacity. In the last month, we have seen a decline in the prices of certain raw materials and services. For example, before the Covid crisis, container transportation cost about $2,000; in the last two years, the price has risen to $20,000, while according to the latest data, prices have fallen to $6,000.
Are these signs that inflation will stop? Experts agree that, unfortunately, this is not the case.
So companies are definitely changing their business models, decisions are being made literally on a daily basis and they are trying to be as agile as possible without panicking. Similarly, our clients have decided to use this time to restructure internally, with a focus on strengthening competencies and new knowledge.
Control costs, adjust operations and focus on creating value. When prices change constantly, keep a close watch on income and expenses.
Final word
Be wise, manage your finances wisely, but do not forget about investments. Listen to what is happening every day and follow, always follow, because only when you have information at your fingertips can you react properly. Invoice Crowd is here to help you with every financial step and decision you make.
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The coming times can bring a lot of good changes. It all depends on the angle from which you look at the changes and how you will respond to the challenges.
