How to Handle Inflation through Proper Financial Management

With the continuous changes in every country and the global social, economic, and political atmospheres brought on by technology, it is only natural for individuals to feel the effects of these shifts through inflation. 
 

Inflation is the economic phenomenon of losing one’s purchasing power due to the value of money decreasing as the cost of products and services increase. All this may be due to market volatility, an oversupply of demand or direct interference from governments but nevertheless, it means your dollar is not having the same value it did just a few months ago.  

 
For companies, inflation can affect everything from their raw material purchasing to their operational costs. Because of this, it has become a norm for companies to include inflation considerations in their financial planning.  

Read: 4 Financial Management Tips to Protect your Company's Assets  

With this, these are some of the ways your company can sustainably handle inflation without hurting your operations. 

Proper Financial Management Tips to Handle Inflation   

Inflation is a persistent problem that affects everyone—even if you're not aware of it. But you can prevent the negative effects of inflation by taking precautionary steps to ensure your savings are safe and sound.  

Build a Reserve

Find ways to manage your cash better. A method you can explore is the practice of building cash reserves. Once you have these cash reserves, it will be easier to straighten out short-term cash slip-ups and avoid borrowing.  

Aside from building cash reserves, here are the other ways to manage your cash flow better: 

• Keep track of all incoming funds and outgoing payments daily, including any bills or fees that you need to pay.  

• Set up a system so that all financial transactions can be recorded accurately in real-time, rather than having to go back through old records at the end of each month or quarter.  

• Make sure you have an accurate account of all expenses related to running your company—these should include salaries, utilities, taxes and other expenditures—so that there is no confusion later when you're trying to determine if there's enough money left at the end of the day (or week).  

Control Your Overhead

Cutting down on some of your company's recurring costs could help you out of a tight financial crunch.  

Note though that the best way to control your overheads is to cut down on your current bills rather than to take them out of the budget altogether, especially if this could affect your company’s operations. 

For example:  

Outsourcing some tasks or processes can let you save on labor costs while maintaining quality assurance standards. It also lets you reduce time spent on non-core activities that might be better performed by an outside party.  

Change Prices Gradually

Keep an eye on inflation rates. If the price of consumer goods and services are on the rise, it would be advisable to start raising your output price as well. 

However, you must do it carefully and gradually. Passing on the burden of inflation rates to your clients is justifiable but this is not a license to impose high price adjustments in one go.  

You should aim for a gradual increase in your output prices rather than a sudden one-time increase that may sound too much for clients. For example, if you want to increase your prices by 5%, you can do so by adding an extra 1% or 2% every quarter until you reach 5%.  

Improve Payment Collection

Developing your billing and collection initiatives is a great way to increase your revenues. As your revenues go up, so do your cash inflows, which can be useful in  combatting inflation.   

By outsourcing this task, you can be sure that companies provide the best possible software to improve your payment collection. This means that you don't have to worry about getting stuck with an inferior product or system that won't meet your needs.   

Find Strategic Investments

Have you considered putting your money to work through investments? You can invest and diversify your portfolio to increase potential returns, mitigate risks and beat inflation. Investing in inflation-protected securities, for instance, is very strategic as it can significantly help offset inflation.  

In managing a company, it is important to acknowledge that inflation is something that we cannot control. The good news is, there are many effective ways to help you counter its effects.     

Read Next: Role of Cloud Accounting in Strategic Business Financial Management  

Need Help in Securing your Company’s Finances? 

D&V Philippines offers a wide array of services to help you manage your company finances better. Contact us today! Our accountants are well-versed in using various accounting software.  

Our goal is to provide you with the tools and resources needed to run your operations smoothly and efficiently. This includes helping you understand what's happening to the overall health of your company. 

You can also download our whitepaper Outsourcing: How to Make it Work to find out more ways to succeed in outsourcing. 

Originally posted on 2015 March 16 and updated by Aly Tagamolila 2024 July 29