CFO and Technology » Top financial planning strategies in the face of rising inflation

Top financial planning strategies in the face of rising inflation

Former financial director Thomas Sutter of the Finance Centre of Excellence at Oracle NetSuite, offers his top financial planning strategies for remaining successful amid an acutely challenging business environment

Top financial planning strategies in the face of rising inflation

With the UK Office for National Statistics reporting a 10.1% rise in the Consumer Prices Index (CPI) in the 12 months to July 2022, representing a 40-year high inflation rate, financial planning is more important than ever.

Research from a recent 2022 study conducted by Oracle NetSuite reveals that 88% of founders of small- to medium-sized businesses (SMBs) are concerned about the impact of rising inflation, and 83% are worried about the impact inflation will have on their business.

The majority (76%) of founders have reportedly made changes to their business plan in the past two years, but have they gone far enough? Inflation can be difficult to manage without negatively impacting a business long term.

Finance leaders in SMBs need to act quickly to bolster their organisation’s financial health and take steps to not only weather this inflation surge but set themselves up for success in the future.

Let’s delve into some core strategies to deliver business adaptability that will reduce costs, complexity, and risks.

Establish a framework to effectively reduce costs 

Reducing costs is often inevitable in periods of high inflation but broad, untargeted cost cutting is often unsustainable and could impede your growth. So, what are the “right” cuts?

As Harvard Business Review’s ‘Cut Costs and Grow Stronger: A Strategic Approach to What to Cut and What to Keep’, authors discuss, firstly, it’s crucial to identify your key capabilities, usually two to five, which your customers care about most. Then align your spending to nurturing these capabilities.

Ask yourself, what do you need to keep the lights on? Where will spending make a difference in terms of winning market share? How can you keep the rest as lean as possible?

To achieve this, all your financial data must be centralised and easily accessible, enabled by effective processes and technologies. Move away from manually maintained spreadsheets and systems that don’t integrate with key business areas, as this hinders a full picture of your organisation’s true financial health — and your ability to make informed decisions.

Cost cutting dos and don’t

With your framework in place, consider the larger market, what competitors are doing, and your long-term strategy, rather than just focusing on the current inflation fluctuation. Financial data on product demand, market structure, competitor pricing, upstream and downstream costs, etc., are all crucial to any cost cutting decisions.

This audit will put your financial team in good stead to address cost cutting across the business, but there are some key Dos and Don’ts to follow:

Do:

  • Address operational inefficiencies – many processes can be restructured, or even fully eliminated.
  • Audit subscriptions and contracts review contracts, renegotiate the ones that are outdated, and maximise spend on those with prices that aren’t indexed for inflation. You’ll also likely find that many subscriptions are underutilised.
  • Prioritise profitability – cut initiatives that are not a core function of your business or are underperforming and take payments off autopay to control spending timings.
  • Review services – consider eliminating free shipping, upping the cost of expedited delivery, or removing or reducing discounts and promotions.

Don’t:

  • Cut strong talent – it is hard to find good, committed staff, especially with the current labour market shortage.
  • Remove areas generating positive cash flow – the likes of sales, SEO, or digital ad spend often need continued investment.
  • Forget remote work needs – retain technology that helps your team to work and collaborate effectively from wherever they choose to work.
  • Eliminate marketing completely – ask the marketing team to consider tactics such as guerrilla social marketing and other inexpensive but effective brand-awareness drivers.

Invest in cloud technologies

Interestingly, 90% of SMB leaders in our Oracle NetSuite study said they can access their key business information instantly, but when pressed about specifics, the extent of that information is lacking. Around three in five (57%) can readily access sales data, but only 47% can see gross profit, 43% net profit, 41% operational cash flow, 35% overheads, and 22% staffing data.

Digging into data on margins, demand for specific product lines, and outstanding payables and receivables, is likely challenging too, particularly as companies grow revenue and diversify their product portfolio. The need for consolidated, reliable data when making decisions is paramount — and never more so than during unstable economic conditions.

In the past, most business software systems were not accessible to young, growing companies, but delivering these from the cloud has changed everything for SMBs. Business software providers configure, secure, and maintain the systems, taking complexity away from SMB financial teams so they can focus on strategically supporting the business.

SMBs investing in the cloud see multiple benefits too, with 85% vs. 37% of cloud and non-cloud users respectively able to automate key processes and avoid manual work. Half of cloud users are also more likely to expand their go-to-market channels and are almost twice as likely to expand internationally.

Adapting to succeed

Inflation is volatile by nature, but SMB financial teams can be just as agile. The economic whirlwind of the past two years has emphasised the importance of resiliency and adaptability and SMBs financial teams that take advantage of the cloud are achieving business efficiency and higher levels of growth.

Cloud technology levels the playing field, with access to real-time, accurate business and financial information to keep SMBs efficient and on track. It’s time to take control and focus on strategic activities that will enhance your business performance and shareholder value by delegating critical, yet mundane, finance functions to a cloud-based unified business management suite.


To hear more about how inflation is expected to unfold over the next 3 years, do register to Dr Neil Blake’s (Chief Economist, CBRE) session at the CFO Executive Dialogue here.

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