6 Clever Ways to Combat Inflation in your Business
According to the Australian Bureau of Statistics June 2022 Business Conditions and Sentiments report, In June 2022, 46% of businesses experienced increases in their operating expenses over the previous month compared to 21% of businesses in June 2021. In addition to this pressure, 1st of July 2022 will bring even more pressure with the increase in Super Guarantee to 10.5%, the scrapping of the $450 super threshold, and the increase to minimum wages. See our recent blog post about the changes coming in relation to super but here is a snapshot of the changes coming to minimum wages.
Minimum Wage Increase Snapshot
The Fair Work Commission’s Expert Panel for annual wage reviews has now published its Annual Wage Review 2021/2022. The outcome of the Review:
The National Minimum Wage will be $812.60 per week (up from $772.60 per week) or $21.38 per hour (up from $20.33 per hour), which amounts to a 5.2% increase; and
Modern award minimum wage rates will increase by 4.6% subject to a minimum increase of $40 per week, such that:
- Modern award minimum wage rates above $869.60 per week will increase by 4.6%; and
- Modern award minimum wage rates below $869.60 per week will increase by $40 per week.
The National Minimum Wage and most modern award minimum wage rates will increase from 1 July 2022. The aviation, tourism, and hospitality sectors won’t see an increase until 1st October due to these sectors being more severely impacted by the COVID-19 pandemic.
To find out how these changes impact you as an employee you should visit www.fairwork.gov.au or speak to your HR professional.
In addition to inflationary pressures across our country, the imminent increase in labour costs could be the final straw for many small business owners who have just come through a two-year pandemic, relying on government support, and already battling an increased cost of running a business. Before you put it all into the too hard basket, there are things you can do to combat these increased costs and keep your business moving in the right direction.
Review Supplier Terms
One of the first places to look for savings is by reviewing your supplier terms. Make sure you are taking advantage of any pay early discounts made available. Keep in mind that if pay early discounts are available to you then there will also be pay late penalties. So be sure that you are aware of these if they are accruing on your account. Negotiating better terms including the number of days you must pay the invoice or increasing discounts can have an instant positive effect on your cash flow. It may even be time to review your suppliers to ensure you are getting the best deals. Many business owners will compare suppliers purely on price rather than price and terms, then when business does get tough be paying a higher price due to late payment fees and penalties.
Get Paid Quicker
The first thing you need to do is to ensure that your own payment terms work for you. There is no use offering a 30-day term if your suppliers all need to be paid in 7 days. If you find yourself with excessive debtor days and customers that just won’t pay, you will find that your terms need reviewing and amending. Also, send you invoices as early as you can and make them detailed and clear. Both in the explanation of the Product or service provided to avoid confusion and how you want to be paid. Eliminate any confusion that may slow down the payment. Finally, make it simple for the customer to pay you and invest in technologies that get you your money faster such as direct debit authorities, eftpos, or online payment platforms such as Stripe.
Inflation is not only impacting you at home but also your business. Increased fuel costs have meant an increase in most things. Your business can only absorb these costs, as well as the increase in the cost of fiancé, for so long and the current outlook is for this inflationary pressure to continue in the short to medium term. It may be time to review your pricing and pass some of these costs onto the customer. This is easier said than done and successfully navigating a price increase can be a risky adventure. How you approach a price increase will depend on many factors including the type of product or service, the industry you are in, and how competitive the market is, but there are a number of things that could help with a price increase:
Be up front and honest – Never increase your prices without advising your customers
Explain the reasoning to your customers – This may seem counterintuitive but during periods of high inflation, customers become numb to price increases and you may find this time the best time to do it. Particularly if it is something that you haven’t done for several years
Add some additional value to your customers with the prices increase – Some more of your time or discounts on other products
One great tip when it comes to pricing reviews is that you should make them a regular thing in your business. Business owners tend to shy away from touching their pricing with fear that the customer will leave but if you can properly articulate the value of your product or service, in combination with regular reviews and adjustments, prices increase will become easier in your business.
The recent upward trend in interest rates has been like a double whammy for business owners with all banks swiftly passing rate rises onto customers. If your business is carrying debt, it is a great time to review your rates and possible other sources of funding. We collaborate with some great Brokers that may be able to assist with a review. Reach out to your Fox Group Manager for a referral.
Increase Efficiencies and Organisation Restructure
Many of our business processes were put in place when we started our business and have never changed. Many business owners don’t focus on finding efficiencies in how they do things – make things faster, fewer steps in a service etc. There are so many cost savings available just by doing things better. These can be small savings such as going paperless, or they could be massive savings by reviewing your business structure to identify tasks that are doubled up across your business. You may be in a situation where you have redundant roles in your business and paying wages that you don’t need to.
Speak To Your Accountant
When it comes to reducing costs, you have no better ally than your Accountant. Your accountant can help you with budgeting and cashflow planning to help you combat increased price pressure in your business. At the Fox Group, we work with many businesses that are all going through the same challenges as you are. We have a team of specialists that can you with understanding changes when they arise and put together practical support to help you. If you are not getting this support for business now, reach out to us here.