How London Businesses Can Adapt to the Inflation Squeeze

London is set for one of its harshest winters yet. Energy bills are skyrocketing with a recession already starting to bite. The news cycle is full of businesses already questioning how they can continue to operate in the face of the inflation squeeze.  

London businesses have a short window to adapt to the inflation squeeze and survive bleak winter. Their best chance? Getting their finances in order.

Commentators are quick to draw a comparison between the current inflation crisis and that of the 1970s and 80s. The difference is a crucial one.

Today’s CFOs are better placed to help their businesses adapt to inflation squeezes than ever before. Their role is fundamentally different – looking beyond the financial health of the company to its wider strategy.

The current inflation squeeze comes hot on the heels of the financial fallout of the pandemic. London businesses were only getting back on their feet before gas prices and energy bills began to skyrocket in the spring. It’s created a perfect storm that will hit its height in the winter.

How can businesses adapt to the inflation squeeze? Working with a CFO. At FD Capital, we’re working to connect businesses with skilled CFOs to help them navigate through this uncertain time. Reassessing your finances and putting a plan of action in place is the best way for any London business to adapt to the inflation squeeze.

Creating an Inflation Plan

Businesses are finding themselves looking backwards to the inflation crisis of the ‘70s and ‘80s. While we should learn from the past, today’s businesses have access to more data and information than ever before.

CFOs are strategists who can leverage forecasting and algorithms to create a financial planning system that accounts for inflation. Such planning involves looking beyond liquidity and to issues like supply chain resilience and talent retention. Inflation planning also includes analysing what increased costs a business is willing to absorb or that it can pass onto the customer or client.

Hiring an interim or part-time CFO can allow London businesses to tap into their knowledge and experience. An inflation plan with KPIs and trackable goals is more essential than ever before. A CFO is best placed to support a company to create this strategy and see it through.

Preparing for Inflation

There are proactive steps every company can take to adapt to the inflation squeeze. Data is the driving force behind surviving periods of financial uncertainty. Your company needs to have access to real-time insights into everything from its supply chain to consumer behaviour and suppliers’ prices.

Fluctuating prices are one of the main challenges businesses face in the coming months. A CFO can forecast and account for likely price increases, particularly in response to rising energy costs.

Scenario planning is where businesses can strategies how they will navigate through this period of inflation. Data is crucial for providing the insights necessary to properly plan scenarios and stress-test a company.  Scenario planning allows CFOs to put plans in place to mitigate against such events. What can businesses do to mitigate the impact of a 25% energy hike?

Inflation planning can only occur when a business has good financial talent behind it. Not every company can afford to maintain a full financial department. That’s where interim and part-time CFOs can step in.

Finding and maintaining talented employees is becoming harder than ever. The ‘Great Resignation’ of the start of the pandemic is not yet over. The only way London companies can adapt to the inflation squeeze is by finding the right talent to see them through the storm.

They need financial professionals with the analytic skills and technological knowledge to create a data-driven strategy. The best way to find this talent is by working with a specialist recruitment agency that can identify the needs of your business and find the most suitable candidate.

Collaboration

Neither a CEO nor CFO can help a business adapt to the inflation squeeze alone. Communication and collaboration are vital to creating a winning strategy. Every aspect of the business needs to operate in unison.

Keeping sufficient cash flow in the face of rising interest rates means companies need to be in constant communication with partners, investors, and suppliers. A vital part of this is engaging with the board. A CEO, with the assistance of their CFO, will need to keep stakeholders up to date with changing financial plans and on the company’s progress.

Operational Resilience

Part of this collaboration should also focus on building operational resilience in the face of rising costs. Such planning needs to be focused on proactive short, medium, and long-term goals and milestones.

The first task every London business should carry out is to examine their underlying costs. They must understand and keep track of the cost of materials and any other supply chain matters. Creating a component-by-component view will allow for more accurate tracking of rising costs, making it easier to identify ways to mitigate them. Such planning can allow for better negotiating with partners and lenders while making it easier to protect against excess price hikes.

Building operational resilience also means building a resilient supply chain to achieve price stability. Coordinated action throughout the company is the best way to ensure price stability, including the potential to redesign or adapt products if necessary.

Operational resilience also stretches to in-house costs. Working with a CFO can help to boost efficiency by ensuring adequate liquidity and tracking productivity. Investing in technology can add operational value and reduce labour costs. Training for current employees is also vital, particularly in digital skills.

The coming months will prove challenging to businesses in every sector across London. Companies must adapt the way they operate to survive the inflation squeeze by limiting their exposure to it.

Building a strong team around a London CFO will allow you to build operational resilience and take proactive steps to mitigate rising costs. Businesses in London can survive the inflation squeeze if they learn to adapt.