Consumers and businesses alike have been feeling the effects of inflation for the past couple of years, with its impact evident in shrinking purchasing power and thinning profit margins.

Rising inflation also lowers real wages, slows economic growth and can even lead to recessions. This creates uncertainty for businesses and affects investment decisions, which impacts economic growth.

Businesses rely on management accountants to develop and implement strategies that address the impact of inflation, as highlighted in the Cost of Business — Inflation's Impact and the Role of Finance report.

You analyse data and present it to business management in an easy-to-understand way, helping businesses make informed decisions that drive growth and success.

Navigate inflation-induced challenges by understanding and adopting an inflation mindset for business strategies and discovering various resources to help create decisions that can adjust to market changes and take advantage of opportunities.

Adapt to market fluctuations with an inflation mindset

Assisting companies in managing inflation challenges requires a unique way of thinking to develop effective strategies.

Having an inflation mindset implies that you are proactive about dealing with how inflation affects a business. It involves viewing and addressing inflation as a potential issue rather than reacting to it after the fact.

You can stay proactive with the Inflation checklist tool. The toolkit defines an inflation mindset as agile, meaning quick to adjust in a fluctuating economy. It uses internal and external business expertise to create effective solutions and a cost-focussed ‘lens’ or approach that analyses data to determine actual inflationary factors from false ones.

Management accountants who possess this mindset are able to predict and prepare for the future, focussing on anticipating inflationary changes rather than simply reacting to them.

An inflation mindset allows you to identify financial opportunities and risks while prioritising your company's resilience to withstand challenges.

By embracing this mindset, you can effectively guide businesses through economic uncertainties.

A solution-based approach to inflation

Regardless of region, business size or sector, the inflation report revealed that finance professionals use similar processes, tools and frameworks to help their companies deal with inflationary pressures. This demonstrates how an inflation mindset helps individuals adjust strategies and navigate complex situations.

The Inflation Toolkit lists several of these useful measures and their importance, including:

Supply chain management: Evaluating your supply chain to identify its strengths and weaknesses and preparing emergency plans to increase resilience. Stockpile inventory and plan to anticipate issues.

Efficiency and productivity: Discovering innovative ways to minimise expenses, enhance efficiency and increase worth.

Pricing and costing: Considering how price increases may affect your customers and determining how they could affect your sales volume and gross revenue.

Process mapping: Providing a framework that shows your business' essential operations works and their connections to the important choices made at each step.

Hedging: Can ensure that your company protects its investments from losing value during inflation.

Debt, interest locks and contracts: Reviewing contracts to find opportunities to increase overall value and lock in current interest rates to ensure cost certainty.

Product substitution: Sourcing cheaper products or alternatives to keep costs and prices low.

Times of work: Considering the timing of work production to save on costs by potentially finding cheaper times of the day to operate.

Scenario planning: Creating a scenario plan that includes all aspects of the business and how they would respond to different market and inflation situations.

Sensitivity and stress testing: Performing stress tests to evaluate how extreme scenarios may affect different business aspects and identify uncommon causes and solutions.

Cost control and cash management: Focussing on cost control is an effective way to minimise the effects of increasing costs and various businesses may implement different methods to achieve this strategy.

Based on feedback from focus groups, the inflation report found that many of these strategies are typical business practices or standard established procedures.

The report also highlighted that finance teams and business leaders should study these key tools and how they can be used effectively to overcome the current inflationary environment and help their organisations become more resilient.

Make informed business decisions to minimise the impact of inflation

Drawing from real-world experiences, The Cost of Business — Inflation's Impact and the Role of Finance emphasised management accountants' key role in identifying strategies to help businesses operate more cost-effectively and minimise the impact of inflation.

AICPA & CIMA offer resources to assist you in adopting a mindset towards inflation, helping you create and adjust business strategies and better prepare for economic changes.

Gain practical knowledge and experience from real-life examples and case studies to discover how to use currency risk management tools to protect against changing exchange rates.

Learn how cost accounting applications provide valuable insights for efficient planning, effective control and accurately determining costs associated with goods, services and customers.

Examine detailed cases involving supply chain processes, globalisation, supplier issues, value chain and financial considerations to identify your company's value and cost drivers through strategic supply chain management for inflation support.

When effective strategies are implemented, they can help companies build resilience against inflation.

Contact our Business Development team to find out how can we help your team to develop better decisions and improve business's financial performance during economic fluctuations.

Article by Ross Archer