Stagflation means high unemployment rates, increasing inflation, and slow economic growth. This cauldron of toxicity has been trending amongst financial analysts recently.
Post-pandemic supply chain bottlenecks, combined with rising energy prices and the economic effects of the Russo-Ukrainian war, are the main contributors to the current economic challenges.
How does this impact businesses?
The rise in energy prices is already starting to impact business profit margins. There is also an intense human capital shortage which is driving up the cost of hiring good people as firms compete to attract the best and brightest talent.
The cost of borrowing is also starting to increase as interest rates creep higher and higher, putting businesses under increased financial pressure. In fact, economists are becoming cautious, with further interest rate increases expected later this year. Plus, consumer confidence is falling and people are tightening their belts and spending less where they can.
What can business do against Stagflation?
All of the above combines to make the current trading environment very difficult for businesses. The best way for businesses to combat stagflation is to find ways to improve productivity. Investing in more efficient software or process improvements can help to streamline your business operations and increase productivity without hiring additional employees.
Businesses should also focus on strengthening their balance sheet. During stagflation, revenue could decrease while costs go up. So, businesses should prepare for tough times by minimizing debt and building cash reserves. Your firm should focus on cash flow. Chase down debts and tighten up your payment terms. It can also help to negotiate longer payment terms with your own suppliers.
Is a tough environment for businesses to operate in; costs rise and sales slow or even decline. Use it as an opportunity to review your current business model, make tough decisions and build your business into a stronger, leaner enterprise.