There’s no denying that inflation is on the rise, with rising costs pushing the cost of living higher than ever.
To make matters worse, the Russia-Ukrain conflict drove up energy, commodities and housing costs. Rising prices are now regarded as a greater problem for small businesses than labour shortages.
While strong retail sales and labour conditions improved business conditions dramatically in March, rising retail prices have raised inflationary concerns in Australia. To make matters worse, analysts predict that the March quarter consumer price index will likely exceed expectations, putting pressure on the Reserve Bank of Australia to start raising interest rates as early as June.
Cutting business expenses necessitates some difficult decisions; thus, for today’s edition of Let’s Talk, we asked our experts to recommend cost-cutting strategies for businesses in order to manage cash flows and increase profit margins.
“Inflation has replaced property prices as the new ‘barbecue’ topic throughout Australia. Businesses have not experienced the challenge of both wage and supply chain inflation for a number of years. Successful management of the inflation risk will be key to setting up companies for longer-term returns.
“In respect of wage inflation, the rise of hybrid and remote-based working represents a great opportunity to help manage inflationary pressures. The ability to hire talent both regionally and globally allows businesses to access a wider talent pool from both domestic and international markets, where inflation rates may be less or where there is significant cost arbitrage.
“As well as the potential cost-benefit this approach has the added benefit of developing a 24/7 operating model for businesses of all sizes.
“On the revenue side, depending on the type of business model, some organisations may be able to pass through additional supply chain cost increases through to customers. Noting that this can be trickier in a B2B compared to B2C environment and result in customers reviewing their procurement options.
“As with most business decisions, leaders need to take a long-term view which must balance the needs of multiple stakeholders including employees, shareholders, customers and suppliers.”
“Inflation may be on the rise, but you can contain costs by ensuring you’re getting the maximum value from them. Payroll is one of a business’s biggest expenses, so it doesn’t make sense to have staff doing tasks that can easily be automated.
“Intelligent automation can deploy software robots to obtain and assess customer and vendor data, as well as relevant reports from different external sources. For example, intelligent automation can take Customer orders and enter them into an organisation’s ERP/core platform to process orders. Workflow can be used to approve orders or staff can only be notified via exception handling. Besides seeing a significant increase in time saved, data quality and reliability will see a boost too.
“Not only will your staff be grateful they don’t have to spend their valued time completing monotonous data entry, but automation also allows businesses to handle higher volumes of work in less time, ultimately helping to drive profitable growth.”
“With inflation prices on the rise, many business leaders may feel the pinch if they are not careful.
“Costs can often be difficult to contain, which is why budget reviews should be a consideration for businesses. Management can determine what aspects of the business need more resources, and others that can do with less.
“Alternatively, businesses can do their research into different parts of the supply chain. There may be a cheaper option out there that does not compromise on quality. Similar to how we urge every customer at WLTH to find the best home loan in the market, business owners can find the best deal when it comes to their subscriptions or other overhead costs.
“In saying that, maintaining a long-term relationship with all your business partners may be more beneficial in the long-term, so instead you can look to negotiate existing agreements.”
“Creating a budget and cash flow forecast, and regularly updating the latter (on an ideally weekly basis) allows business owners to see how they are tracking against their budget in real-time, and in turn identify ways to cut costs.
“The most efficient way to achieve this is to organise costs in the company’s accounting and bookkeeping software by category. This then allows the business owner to see which non-essentials they can eliminate or reduce, such as subscriptions, which can be easily forgotten yet inevitably add up.
“This approach also enables business owners to identify trends in their earnings. If some months are less profitable than others, or debtors are consistently making payments after they are due, it allows for one-off costs, such as investing in new equipment, to be shifted to a month that is more lucrative, and for the business owner to revise their payment terms with debtors.”
Over the past few weeks, we have seen federal budgets being passed, reduction in taxes and more focus on first home buyers to combat a growing issue many Australians are facing.
“There are essential bills that everyone pays which impact overall costs of living and one of the main ones is energy bills.
“At CIMET we educate organisations on how comparing and switching energy providers for their business can significantly reduce their monthly expenditure.
“Below are a few additional ways to minimise expenses that can quickly become a burden:
“From a business perspective, whether it’s building a business and needing a new website, a call centre or diversifying your product offering, businesses can look into outsourcing complete customer journeys, set up and delivery. White label technology platforms allow complete re-brandable service platforms for your business and often are much more economical as it allows you to expand your business without the additional costs of personal, tech etc.”
“A healthy and predictable economy will typically see inflation increase in line with wages. This ensures that businesses can sell products or services without impacting margins and operating cash flows, and that their customers can afford to pay for them.
“However, according to the ABS’ Consumer Price Index and Wage Price Index data, consumer prices have increased by 3.5 per cent in the past 12 months, but wages have grown by just 2.3 per cent: in short, wages aren’t keeping up with the costs of consumer goods. The choice for the average Australian, therefore, is simple: don’t purchase the products, which impact the bottom line of a business, or seek a wage increase at their current job or another one, which impacts their workplace’s margins and forces them to increase costs to cope.
“This current imbalance – fuelled by a combination of supply chain issues and staff shortages – is leading to the profitability margins of businesses being detrimentally impacted.
“When it comes to national economic predictability, there is not much a business can do other than batten down the hatches. But intensifying the pressure is an under-discussed issue many organisations face: a lack of visibility over their supplier contracts and invoices, with overcharging from suppliers more common than most business leaders might think.
“We work with organisations across Australia to help them identify “lost revenue” – that is, deals with suppliers they haven’t properly tracked, and times they’ve been overcharged by suppliers and not chased a correction. This is a common issue for any organisation that procures goods and services, and no sector is immune.
“Over the past three years, we’ve tracked the level of overcharging by our clients’ suppliers and found that, on average, all suppliers overcharge: while some are as little as 0.81 per cent on average (cash collection suppliers) others, such as trolleys/maintenance (an average of 5.84 per cent), printing services (5.04 per cent), and cleaning/floorcare (4.68 per cent) overcharge regularly. In one instance we found that a supplier overcharged by more than 22 per cent on an invoice that the client wasn’t aware of until such time an audit program was implemented.
“When it comes to businesses which have long term, regular supplier contracts, these average overcharges can start to snowball. Left unchecked, it can lead to significantly impacted profitability with some organisations losing millions per year through a combination of overcharging, misunderstood or misrepresented supplier contracts, or a lack of visibility into what’s owed to them by way of rebates.
“It still amazes us how much revenue is in limbo just waiting to be claimed; from nearly 6300 claims we came across last year among clients, more than $28 million was recovered in 2021 alone.
“It is critical that organisations review all transactions and invoices, down to individual line items, to ensure that all revenue is collected, and overcharges are identified and rectified.
“They need to take control of what they can, as inflationary and wage pressures are two pressures they can’t.”
“US inflation is widely expected to remain near 6 per cent throughout the year, implying a rise of half a per cent in US interest rates at the Federal Reserve meeting in May. The market consensus is for a half a percent rate rise in May. The ECB and the Reserve Bank of Australia (RBA) are likely to quickly follow any rate rise announced by the US Federal Reserve next month.
“Accordingly, Australian households should prepare for the RBA to announce a quarter of one per cent rate rise in June. The RBA’s own inflation forecasts to be released in May are likely to lay the groundwork for higher interest rates at its first meeting immediately after it revises its inflationary outlook.
“A move to higher interest rates following an extended period of near-zero interest rates should not come as a surprise to equity or debt market participants and is unlikely to have a major or lasting negative impact across all asset classes. As the old investment adage goes, “if it’s in the news, it’s in the price”.
“From an investment perspective, there are certain asset prices trading at elevated price levels that can be explained by low interest rates. However, quality assets with sound underlying fundamentals within a diversified investment portfolio, are likely to weather the shift to normalised interest rate settings in the year or two ahead.
“In response to a changing interest rate environment, now is the time for investors to evaluate their portfolio in terms of withstanding the headwinds likely to accompany a gradually increasing cost of money over the coming 12-18 months.”
“Most Australian businesses secure their devices and networks by updating security software and setting up firewalls; these are generally known as an organisation’s first line of defence. However, your companies’ best line of defence, is your staff.
“95 per cent of Australian companies surveyed in Sophos’ ‘The Future of Cybersecurity in APJ’ believe their biggest security challenge in the next 24 months will be the awareness and education of employees and leadership.
“Staff not only need to know how to spot threats but how to react to them and what to do during an attack.
“There are several ways to increase employee awareness without breaking the bank. Policies can be put in place to guide staff through cyber-attacks, and organisations should implement cybersecurity education programs to improve awareness and understanding of the threat landscape.
“As cybercriminals continue to find different tactics to outsmart businesses’ security measures, ongoing employee cyber awareness education is critical to protect businesses against attacks.”
“The past two years have seen reduced immigration and increased staff turnover lead to massive increases in labour costs. For example, developers/engineers’ salaries have increased as much as 45 per cent in the past six months due to talent shortages.
“Staff retention is crucial to containing costs when replacement is up to 45 per cent higher, so ensuring staff can focus on high-value tasks is an important step to improving satisfaction and retention.
“Automation is a simple way to improve staff productivity and remove low-value tasks from already busy schedules. Local leaders like Atlassian are saving hundreds of FTE resource hours through automation, improving staff productivity and retention.
“There are three easy steps businesses can take to implement automation:
This post was aggregated from Dynamic Business (https://dynamicbusiness.com).