Key insights
- Be on the lookout for market trends and changes that impact your ability to increase prices in response to increasing costs.
- Understanding your variable and fixed costs allows you to quickly and surgically respond to market changes.
- Stress-testing your business can help you understand the future impact of inflation, holding inventory longer, and, most importantly, cash flows.
Is cash flow a concern?
Look out for market trends
Just yesterday I received an email from a retailer asking if I was still in the market for one of their products. When we connected in the first part of the year, they shared November would be the product’s next period of availability. Now, you can walk in the door and purchase it the same day. This is becoming a common story in the marketplace.
How are you sitting? Over the past two years, organizations have competed for goods and people. While the labor market continues to be competitive, many retail products are becoming increasingly plentiful. Some organizations are now experiencing the pain of over-purchased inventory that has been financed through loans. The drive to get more products onto the shelves is converting back to pre-COVID behaviors of monitoring inventory turns. Does this scenario sound familiar?
Understand your fixed and variable costs
Understanding the cost structure of your business goes a long way in knowing how to respond when market conditions change. Are you thinking about expanding to meet customer demand or developing new business lines? Often expansion creates fixed costs that cannot be easily eliminated should market conditions tighten.
On the other hand, variable costs generally follow the flow of revenues and can be scaled up or down based on your needs. Looking forward to the future and not only to what just happened can help you navigate volatility.
Stress-test your metrics
Stress-testing your organization is a critical step in forward-looking analysis. You’ve likely scrambled to get inventory for over two years. Today, you may be wondering if you have overbought as you see inventory levels rise. If you financed your inventory with lines of credit, you may now face rising interest rates.
These scenarios force businesses to take a harder look at how they will make money moving forward. Take what you have experienced in the past and project it out into the future. If you continue to grow at the same rate, what infrastructure costs will you need to incur? What if revenues are flat or declining? How will you respond?
How we can help
Building a valuable and sustainable organization takes balance. CLA brings deep industry knowledge and experience to offer an objective perspective and valuable advice. We can help you leverage your operational data alongside information about the current or predicted consumer, business, and economic markets to forecast the impact of today’s business decisions.
Connect with CLA today, and delve into data analytics and insights that can help you move forward with confidence.