Can Outsourcing Mitigate the Risks of Inflation For Your Company?

Published - Aug 31, 2022

As the UK is despairing over the latest rise in inflation, the conversation has understandably been focused on how the cost of living increases will affect everyday people. This is an important conversation to have, and companies should be aware of the struggles that their employees and consumers are facing. Inflation also affects businesses, and mitigating the risks of inflation on your company will allow you to continue to provide jobs as well as your product or service for your clients.

How Will Inflation Increases Affect UK Businesses?

The most obvious answer is that consumers are pinching pennies due to the rise in the cost of living and therefore are less likely to spend on non-essentials. Surprisingly, that is one of the least disruptive effects of inflation on UK businesses.

Here are 5 surprising ways inflation affects UK companies.

• Risk of Losing Talented Staff – As the cost of living increases for your staff, they may find that they need to look elsewhere to maintain their standard of living. If you don’t increase wages to cushion your team from inflation, they may need to move jobs to increase their earnings or even move to a more affordable area. This is particularly the case for people living in London who may need to move out of the city to afford the same standard of living.
• Supply Chain Disruptions – Supply chain disruptions from Brexit, Covid-19, and the Ukraine-Russian war are major factors in the current rise in inflation. Unsurprisingly inflation makes supply chain issues worse because all of the companies involved are experiencing the squeeze of inflation as well. Some of your suppliers may even have to close up shop temporarily or permanently.
• High-Interest Rates – As the cost of living increases, so too does interest rates on loans. Borrowing money to invest in business-growing projects is a great way to make it through the rocky inflation increase, but the rising interest rates may make that less accessible if your business is already feeling the squeeze. Similarly, if you already have loans that are not fixed rate, your repayments may have increased, adding to your business expenses.
• Passed Along Costs – Every business is experiencing increased costs, and most companies respond by raising their prices. This means that your vendors’ costs will be passed along to you, and you will see a rise in the cost of providing your product or service.
• Exchange Rates Costs – with international suppliers may experience additional expenses in their business. Not only will they be hit by the costs of inflation, but the value of the UK pound will fall in relation to other currencies. This means you will be paying more for goods and services even if your vendor doesn’t change their prices.

How Can Outsourcing Help Mitigate The Risks of Inflation?

Outsourcing is a great way to reduce costs and allow your business a lot more flexibility in the face of inflation. It allows you to access the talent you need without the added cost of benefits, training, and recruitment. You hire someone to perform specific tasks without paying them for unproductive time, and often you get senior talent for the price of an entry-level employee.

Engagement contracts with businesses or freelancers are often a lot more flexible than employment contracts. You can end the professional relationship at any time for any reason and with much less cost than laying off employees. It is also a lot easier to re-engage outsourced talent when you need them again as compared to employees who will likely have found other jobs.

A third way that outsourcing can mitigate the risks of inflation is it allows you to get expert assistance in your business much faster than the employment process. You are hiring someone who can start in a shorter space of time and will hit the ground running. You don’t need to spend time training them or taking them through an orientation process because they are an external provider.

Outsourcing CFO Services Will Help Your Company Adjust to Inflation

A CFO can help you to predict the impact that the rise in inflation will have on your company and create projections to see where your money will be best spent to protect your business. In the past, we have also helped our clients find and apply for grants with far better repayment terms and interest rates than business loans and organised the financial records they needed for their applications. Read our case study to see how we helped a construction company achieve growth during the Covid-19 pandemic.

GMT’s CFO services provide a high-level overview of your business’s financial health as well as insight into how each decision affects your company’s finances. We can provide financial reports and projections to inform the decision-making of your stakeholders and help your company craft a bright future. Book a call to discuss how we can help your company thrive in the face of inflation.

Posted in Finance on Aug 31, 2022