Stagflation can have wide-ranging impacts on small businesses. In this post, we will look at how to take on the impact of stagflation.
In the current high-inflation economic environment, stagflation remains a very real risk in the United States and other Western countries. Stagflation is a term used in economics to describe a unique and troubling economic scenario characterized by stagnant growth, often accompanied by rising unemployment and simultaneous inflation. In other words, it’s an unusual situation where the economy isn’t growing, but prices are rising. Fortunately, there are ways to possibly minimize the impact of stagflation.
In the last blog post, ‘how stagflation impacts small businesses’, we defined stagflation, and inflation, as well as defined specific impacts of stagflation on small businesses. In this post, we will explore ways to take on the impact of stagflation. Specifically, we:
- Define best practices for cash flow management.
- Look at how maximizing your operational efficiency can reduce the impact of stagflation.
What are the best practices for cash flow management during stagflation?
In an era of stagflation, managing your cash flow effectively becomes more important because you are balancing increasing prices and declining sales to ensure that your business can cover its expenses and invest in promising new opportunities. The following are ways a business can optimize their cash flow:
Accelerate payment of your receivables
You can speed up, or accelerate payment from vendors of your accounts receivable, by:
- Incentivizing Early Payments: Offer small discounts for clients who pay their invoices early.
- Clear Payment Terms: Ensure your invoices have clear and concise payment terms. Avoid ambiguities.
- Regular Follow-ups: Regularly remind clients of upcoming or overdue payments.
- Accepting Multiple Payment Methods: Offering various payment options like electronic transfers, credit cards, or mobile payments can speed up transactions.
- Credit Checks: Before entering contracts, conduct credit checks on clients. This ensures you’re doing business with entities that have a good track record of making payments.
Delay payment of your account payables
You can also delay the payment of your accounts payables, by:
- Negotiating Terms: Work with suppliers and vendors to negotiate extended payment terms.
- Leveraging Grace Periods: If there are grace periods without interest or penalties, utilize them, but ensure you pay before any extra costs kick in.
- Prioritizing Payments: If you can’t pay all your bills at once, prioritize them. Pay crucial bills that might affect operations first.
- Use Credit Wisely: While relying on credit can be risky, it can also be a tool when used judiciously. For instance, using a business credit card can give you an additional grace period, but it’s vital to avoid high interest charges.
- Build Good Relationships: Foster good relationships with vendors. Businesses that have a history of timely payments and open communication might get more leeway during challenging times.
Navigating your small business through stagflation requires a balance of proactive planning, oversight, and flexibility. With effective financial management, businesses can not only withstand the challenges of navigating through a period of stagflation but maybe find opportunities for growth and expansion.
In this next section, let’s look at operational efficiency and how it relates to navigating through a period of stagflation.
How can process optimization be used to navigate through stagflation?
Process optimization involves redefining business processes to maximize output while minimizing inputs. It is basically doing more with less, improving operational efficiency, and minimizing the impact of stagflation. Ways to implement process optimization include:
Lean management is a model used by Toyota that is based on helping organizations identify key pain points and their operation and works to eliminate waste across all areas of the organization, not just manufacturing. This process is aimed at maximizing value to the customer while minimizing waste. The key principles of Toyota Lean Management are:
- Value: Begin by understanding what the customer values. This sets the foundation for the entire process.
- Value Stream: Map out every step of the production process, identifying steps that add value and those that don’t.
- Flow: Ensure that products and services flow smoothly through the value-adding steps without interruptions or delays.
- Pull: Production should be based on actual demand (pull) rather than forecasted demand (push) to reduce overproduction.
- Perfection: Continuously refine processes to reduce waste and enhance value.
Lean management is a process optimization technique. Fortunately, there are ways to achieve the same goal of maximizing your operational efficiency. Ways to enhance your operational efficiency include:
- Automation: Automated systems can handle repetitive tasks, eliminating manual errors and speeding up processes.
- Data Analytics: Data analytics tools can offer insights into operations, highlighting areas for improvement.
- Cloud Computing: Facilitates real-time collaboration, scalable storage solutions, and reduced IT costs.
- Integrated Systems: Systems that communicate seamlessly reduce data redundancy and improve decision-making.
- Mobile Solutions: Mobile tech allows for remote work, real-time updates, and on-the-go decision-making.
As we are seeing, stagflation does not have to be all “doom and gloom”. Many leading companies are using it as an opportunity to improve their operations, making them a stronger competitor in the long run. In this blog post, we have explored ways to better manage your cash flow and ways to increase your operational efficiency as a tool to minimize the impact of stagflation on your business.
If you are looking to grow your business or cover a shortfall, we can help. Zip Capital Group specializes in merchant cash advances, equipment financing, and working capital financing for small and medium-sized businesses across the economic landscape. Contact us or call (800) 795-3919 today.
Coming up, how to minimize the impact of stagflation, part 2
In our second blog about how to minimize the impact of stagflation on small businesses, we will discuss optimizing your supply chain, and marketing and customer relations strategies to minimize the impact of stagflation.