Inflation is About More than Higher Prices for CFOs

Inflation is About More than Higher Prices for CFOs 

Mindy Barker | Barker Associates

Go to any grocery store, restaurant, hotel, or gas station and it’s clear that 2022 is giving new meaning to the word inflation. In fact, inflation in the United States has soared to its highest point in 40 years. Between the supply chain disruptions, labor shortages, unprecedented government stimulus, and shifting consumer spending that have occurred around the world, and particularly in the United States, companies are feeling the crunch (and some may say, seeing the opportunity).  

In Deloitte’s recent survey, CFO Signals™ , inflation was listed as a top concern for three-quarters of CFOs. And a vast majority, 76%, indicated that raising prices would be at least part of their response to offset increases in costs. This seems logical, of course, but there’s much more to it, with ramifications that can extend far beyond this year.  

For CFOs, it’s not merely about paying more for products and services or raising prices in an attempt to counteract those increases, it’s about reprioritizing strategies in an incredibly volatile environment. Specifically, many will not only adjust prices, but also look for cost-saving opportunities and prioritize the sale of high profit margin products. While the uncertainty creates challenges, it can also create opportunities when the company is open to them. 

There are a variety of strategies that CFOs can utilize. According to an article in CFODive, “[i]n addition to raising prices, companies are adjusting to higher inflation by cutting costs, negotiating with suppliers, diversifying their supply chains and relying more heavily on advanced technology such as data analytics.” 

The strategy deployed will likely depend on the size of the business and how many products or services they offer, among other factors. For example, smaller and medium sized businesses haven’t been as willing to raise prices. They are more often on the forefront with their customers and, with regular interaction, are trying to keep prices the same for them. Yet, they are experiencing the drastic increase in their cost of goods sold, as well as their payroll to get top talent in this highly competitive market, just like everyone else. And if they don’t increase their prices, they may soon find themselves unable to keep up and out of business. 

Additionally, most businesses have different profit margins for different products. It only makes sense to try to sell the higher profit items sooner rather than later. This can be accomplished in a number of ways from merely suggesting the other product to the customer or explaining that the original product will be delayed, but they have an alternative for it. Companies do this all the time to get the high-profit product out the door faster and by extension, get more money into the accounts faster. 

Navigating the uncertainty around this extraordinary high inflation will be a priority for business planning in upcoming quarters. For CFOs, they must consider the following questions: 

  • How long will the supply chain disruptions last? 
  • How is consumer spending shifting? 
  • How much are wages increasing? 

After careful consideration of these questions, CFOs can analyze future scenarios (inflation levels out, continues to increase, or drops as drastically as it has risen) and develop strategies under each. They can then determine the impacts to operational strategy, human capital, supply chain, pricing, restructuring, real estate, and taxes for both the short and long term. 

Barker Associates provides strategic guidance to companies of all sizes. We provide the higher level of strategy your company needs to grow, especially as it relates to the issues affecting the bottom line, such as inflation and the strategies used to combat it to keep your company running. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

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