The Price is Wrong

Just as companies were looking ahead to a post-pandemic economic recovery, having remodelled their organisations to fit the new normal, Russia invaded Ukraine and the cost-of-living crisis hit.

Rising inflation is not exclusive to the UK – inflation increases are affecting most industrialised economies, so there is only so much that politicians, central bankers and economists can do to insulate the British economy. The economic outlook for different industry sectors varies greatly. Consumer-facing businesses have experienced the harshest impact from the lockdowns.

As inflation rises and consumers tighten their belts, this sector will likely be hit hardest. However, input cost pressures will soon filter down into the wider economy affecting all sectors. How long a business can absorb these costs before passing them on to clients depends on the financial health of an organisation. But however financially robust a business is, their finance teams can still fi nd further efficiencies.

A unique set of skills Accountants and professionals who work in finance have a unique set of skills because they have the ability to analyse processes, controls, efficiencies and the way that things operate. And although finance teams may only be applying those skills to financial processes and systems, at this critical time, it’s vital to try and understand the broader business operationally as well.

Tracy Richardson, partner, audit and assurance at Azets, says: “If the finance team can really get under the skin of what happens operationally, they can offer valuable advice, such as efficient ways to implement technologies into various processes and systems.”

Data management is also critical. Finance teams can illustrate where the costs are, where profit is, where efficiencies can be made and where there might be scope to improve. “Finance professionals have a really big role to play in helping all areas of the business. It’s so key for finance, particularly at the moment, to make sure that information and finance data is up to date,” Richardson adds.

Typically, small and medium-sized businesses don’t forecast that far in advance. Finance teams need to take responsibility for forecasting systems, and (where possible) future analysis to predict pinch points. It depends on Image: Shutterstock the size of the business, but experts suggest finance should be forecasting at least six to 12 months in advance.

Clear communication Ensuring open communications channels not just within the business, but with external partners, is vital too. Talk to suppliers to make sure that you have the most beneficial payment terms. Negotiate terms on early payment, settlement discounts, or bulk purchases, which might be able to bring down costs. Equally, look at customers’ payment terms and see if there’s anything you could do such as discounts to receive payment quicker.

“Running really tight credit control processes, if you are a business that relies on giving customers credit, is vital. Really tighten up on all of those processes and make sure that you’re maximising your cash position,” Richardson says.

With energy prices going through the roof, look at fixing contracts or renegotiate them to get better prices. This process can be applied to all a business’s supplier contracts. Fixed pricing will also help with forecasting. Banking facilities can also be renegotiated to build in efficiencies. This should be an annual standard housekeeping job in any business, experts say.

Again, talking to external advisers can help in terms of making the most out of tax advantages, research and development credits, tax credits and capital allowances. Creating an agile business will ensure organisations not just survive during these tumultuous times, but also thrive. Finance teams can be at the forefront of helping create adaptable businesses. Now is the time to put those skills into practice. 

CONSIDER TAX BANDS

Clare Bowen, a director at south-west accountancy firm Monahans, says there might be wriggle room in managing payroll.

“Extra finances for employees can be arranged to be paid net via payroll; this is where the employer would cover the tax and NI due by increasing the gross amount paid. However, a note of caution for employers, as this could be significant for someone on higher rate tax.”

Bowen also suggests looking at tax-free options, too. “Perhaps direct salary support is not an option for your company, but there are other support mechanisms that can be put in place which are taxfree. For example, vouchers for goods such as food, clothes and experiences can be a tax-free benefit, as can childcare support.”

FIVE THINGS TO CONSIDER

1. Review wider business processes and systems, not just financial.
2. Forecast at least six to 12 months in advance to help with decision-making.
3. Lock down costs. It’ll help with forecasting.
4. Renegotiate contracts to secure reductions.
5. Benchmark against your competitors.