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While inflationary pressures have moderated in recent months, it has become more pronounced since 2021. This has put added strain on the prices of everyday goods and services – affecting both individuals and businesses.
The higher inflation can be attributed to the unprecedented quantitative easing by the United States and global supply constraints due to COVID-19 lockdowns. Similarly, ongoing geopolitical conflicts have put further pressure on food and energy prices.
For businesses, a high inflationary environment may be determinantal. Not only will customers relook expenses (affecting your revenue and profits), but your operational costs will also increase.
How Much Have Costs Of Goods and Services Increased?
We can determine price changes of goods and services by looking at Singapore’s Consumer Price Index, or more specifically, the CPI – All Items and the MAS Core Inflation, which excludes components of “Accommodation” and “Private Transport”.
Based on the recent MAS Consumer Price Development report for December 2023, the CPI-All Items Inflation is 3.7%, while the MAS Core Inflation stands at 3.3%. As we can see in the chart below, this has tapered from mid-2022.
Source: Consumer Price Development In December 2023 – MAS
Inflation does not affect all businesses equally though. Some may suffer a negative impact while others benefit.
Small businesses may be disproportionately affected by higher rising interest rates, spiralling cost of raw materials, increasing overhead costs, including salaries and rents, and lower consumer spending due to higher prices.
More established businesses with a strong brand following and customer loyalty and a lack of competition, or those providing essential goods or services may be in a better position to pass on the effects of higher costs to their customers.
How Business Can Manage The Challenges Of Rising Costs
Here are some ways that businesses can not only overcome the challenges as a result of the high inflation and interest rate environment, but also come out of it stronger.
#1 Cut Costs (In A Sustainable Manner)
We have seen the biggest tech companies in the world cut staff as well as refocus their energies on core profitability and core competencies. For small businesses, this can be a signal that you need to be financially prudent – even if your sector has not been impacted.
At the same time, broad and untargeted cost-cutting can be unsustainable and may even impede business growth. Not to mention, it could leave your employees confused and unmotivated. Analyse which expenses are essential to the core functions of your business and which can be cut without impacting profitability and/or your core business goals.
Some cost-cutting measures may include downsizing your business premises or even switching to hybrid working arrangements, working with other suppliers to reduce the cost of raw materials, and reducing your manpower count by reorganising staff.
#2 Reviewing Your Pricing Regularly And Consider New Pockets Of Growth
Disruptions in supply chains and commodity prices can potentially lead to drastic and sometimes unexpected costs increases. You need to regularly review your pricing to make sure it is still in line with your costs – i.e. don’t lose money each time you sell your product.
A gradual price increase over a longer period, rather than a sudden steep increase, would be more acceptable to your customers as well.
Diversifying your supplier base can give you better bargaining power in some instances. Moreover, you also strengthen your own supply chain – in case a supplier runs into financial or supply chain difficulties themselves.
While it may sound counterintuitive, this may also be a good time to consider expanding to new markets or seeking other opportunities in your dominant market. This would allow you to expand your business and gain a bigger market share, when others are less willing. In turn, when the economy turns, you may be ahead of the competition.
#3 Shore Up Cash Holdings
You need to review your financial goals and assess the financial health of your business to account for a persistently high inflationary environment and possibly slower growth.
With a more regular review of your balance sheet, you will gain a deeper understanding of whether you need access to financing for your working capital needs. In other instances, encountering delayed payments, incurring unexpected expenses and even chancing upon new business opportunities may require quick access to cash.
Knowing the different short-term loan options available can speed up the process and alleviate some stress.
For example, if your business has a large amount of its assets as accounts receivables or invoices issued to customers that are awaiting payment, you can consider OCBC Short-term Financing. It allows businesses to convert their unpaid invoices into cash, providing immediate financing as low as 0.6% per month.
SMEs can access ready cash using the OCBC Revolving Term Loan, providing a drawdown amount for however much they need up to S$200,000 – and best of all, you only pay for what you use.
Otherwise, you could obtain an OCBC Business Loan that does not require any collateral and allows for financing up to S$700,000 with a repayment period of up to 5 years. Having access to financing would enable you to deal with any cash flow issues or take opportunistic moves in a challenging business environment.
Read Also: Guide To Opening A Business Account For Your Start-Up In Singapore
#4 Streamline Work Processes With Automation And Digitalisation
Taking proactive measures to automate time-intensive work like scheduling, order taking, billing, and collecting payments, can help reduce the need for human labour. You can also tap on available government support, such as the SkillsFuture Enterprise Credit, providing a one-off $10,000 credit per company, to upskill your employees and improve productivity.
Businesses should also adopt digital technologies that can help streamline work processes and improve efficiency. For example, with an OCBC Business Account, you can create e-invoices instead of sticking to traditional hardcopy versions, and track your finances and expense management, and analyse your cash flow based on your past, present, and future cash flow position on-demand. These features on OCBC Velocity are free with an OCBC Business Account and can also be assessed on your OCBC Business app.
Read Also: 3 Things (That You Probably Didn’t Expect) Your Finance Manager Can Do In OCBC Velocity
#5 Adopt Sustainable Business Practices
Another potential area of growth is sustainability. This includes greening any building assets that you may have by retrofitting them with renewable energy sources like solar panels, optimising the window-to-wall ratio, using low-emission glazing, and using renewable construction materials for the building.
You can tap into OCBC’s Green Commercial Property Loan to finance any building improvement work or pivot to more sustainable business practices. On top of the financing, you will also enjoy a free assessment of your property’s energy efficiency and learn other ways to reduce energy costs by adopting sustainable practices.
Making the transition to sustainable practices may not only involve some cost reduction (i.e., less energy costs) but also strengthen the business’s proposition in the long run as a key green enabler in the eyes of stakeholders and investors.
Preparation Is Half The Battle
With rising costs, higher-for-longer interest rates and persistent inflationary pressure, businesses should take precautionary measures to tighten their finances. Effective cost-cutting measures and digitalisation to become more productive will help you will shore up your cash.
Businesses that require extra financing for their working capital needs or expansionary plans could consider the different types of business loans, such as Business Term Loans, Short-Term Financing, OCBC Revolving Term Loan and OCBC SME Sustainable Financing, based on their needs and suitability.
With an OCBC Business Account, you also enjoy a host of digital banking services that allow you to analyse, plan, manage, and execute various business functions like your sales, expenses, and cash flow management on the go using the OCBC Business app.
Read Also: 4 Important Small Business Questions To Ask Before Becoming An Entrepreneur
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