Small Business Shared Interest Group

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Inflation and Small Business

  • 1.  Inflation and Small Business

    Posted 01-17-2022 11:51 AM
    CFOs say during quarterly earnings that they are passing on higher costs to consumers, higher wages and material costs are significantly and negatively impacting profits-some warn more pain is still ahead.

    Whether the inflation is due to the global supply chain disruptions, wages, or the disconnect between supply and demand (global consumer spending is way up), how is inflation impacting small business, and what are small businesses doing to manage it, including the option of passing on some of the incremental costs to consumers.

    What factors should small businesses consider in making these choices?

    Please share your thoughts or experiences on this subject, so we can start a discussion in this new IMA Small Business community!

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    Dana Riess CMA, CFM, CPA, CPIM, CSCP
    Chief Financial Officer
    Boulder CO
    United States
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  • 2.  RE: Inflation and Small Business

    Posted 01-17-2022 01:13 PM
    Here are few options for small businesses to manage higher costs/Inflation and in fact i am myself using some of these to run and make my business successful.
    1- Use of digitalization significantly reduces costs.
    2- JIT (Just in time) inventory system may be adopted.
    3- Maintaining relations with maximum suppliers to cover the risk of material/inventory run out.
    4- Backward Integration to ensure uninterrupted supply and cheaper costs.
    5- Increasing Customer base for sustainable profit margins.
    6- Cost benefit analysis of installing robotic/automatic machines may be performed.
    7- FOH Costs may be reviewed and cost centers may be identified.
    8- Cost cutting strategies may be implemented.
    9- Diversification strategy may be formulated and implemented for overall good profitability.
    10-Latest tools and techniques in daily operations may be introduced for cost saving and efficiency in operations.
    11- Site/processing facility may be shifted in those areas where raw material is cheaper and available without interruption. 

    Regards,
    M.Muzzamil Farooq 
    ACMA,CMA USA,APFA,DIFRS,CC
    Director
    Multi-Pro-Merchants


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    Muhammad Farooq ACMA,CMA USA,APFA,DIFRS,CC(TMI-USA) Director
    Multi Pro Merchants
    Lahore State
    Pakistan
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  • 3.  RE: Inflation and Small Business

    Posted 01-18-2022 04:06 AM

    Choices available to each business may differ.  However one common framework that provide insights - where to focus upon is - Value Chain Analysis.
    Mapping the firm's activities at every stage of the value chain and classifying them in to 
    1. Activities that are creating / adding value to customers and Customers are also willing to pay. 
    2. Activities that are not creating / adding value to customers.
    3. Initiate action to eliminate or to minimize the activities that are not adding value to customers.
    4. Re-allocate the available resources for those activities that customers are willing to pay.
    5. Conduct the value adding activities efficiently to reduce the cost structure - to protect the margins

    The above approach helped our clients in sustaining their profit margins and retaining the customers

    Increasing input costs due to external factors are common to all the players in the market place.

    Thanks and Rgds
    Javvadi H. Rao 

     






  • 4.  RE: Inflation and Small Business

    Posted 01-18-2022 02:16 PM
    Muhammad

    All your suggestions are very interesting but I think depend on the strategy and type of business you are running. It is possible that you can tell us which of your ideas you are implemented succesfuly.

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    Roberto Mendoza
    Academic
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  • 5.  RE: Inflation and Small Business

    Posted 01-18-2022 03:28 PM
    Thanks Muhammad. Can you provide some additional commentary on how you've successfully managed your JIT system, given all of the current supply chain disruption and chaos? That is quite an accomplishment!

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    Dana Riess CMA, CFM, CPA, CPIM, CSCP
    Chief Financial Officer
    Boulder CO
    United States
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  • 6.  RE: Inflation and Small Business

    Posted 01-19-2022 11:37 AM
    Thank you too Ms.Dana for writing/initiating valuable discussion in this group. Adopting JIT inventory system alone in days of global supply chain interruption due to the prevailing pandemic is not sufficient. Complete Value chain analysis and mapping is also much required  for sustaining reasonable profit margins. Choosing and adopting right strategy surely depends upon the nature of business and product. Small production houses/units can be shifted to those areas where your required raw material in extracted. In this way, my business not only took the geographical advantage of interrupted supplies but also save notable freight costs. Adopting JIT, moving business location, value chain analysis, digitalization and backward integration helped us to meet customer's expectations without any major increase in prices. We are going global soon and its surely due to the right decisions at the right time.

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    Muhammad Farooq ACMA,CMA USA,APFA,DIFRS,CC(TMI-USA) Director
    Multi Pro Merchants
    Lahore State
    Pakistan
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  • 7.  RE: Inflation and Small Business

    Posted 01-20-2022 09:52 PM
    Is it appropriate to implement JIT approach when costs are rising?


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    Heather Bain CMA, CPA
    Consultant
    Bain CPA Business Strategies, LLC
    Houston TX
    United States
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  • 8.  RE: Inflation and Small Business

    Posted 01-20-2022 10:15 PM
    In the context of supply chain disruptions, JIT may not be appropriate.  What may be relevant is "Just In Case"  which needs more capital.
    The real issue in my view is "Competitiveness" of the business in the market place - Ability to  acquire customers who are willing to pay and retaining them - All activities in the business should focus on this to sustain margins.
    Our experience, with clients, is that in the short term it reduced the sales turnover  (by dropping some of the customers) but increased the PBIT and cash flows.

     






  • 9.  RE: Inflation and Small Business

    Posted 01-21-2022 01:33 AM
    JIT may not always be appropriate in case of supply chain disturbance but factors of supply chain disturbance must be evaluated before taking any decision.If factors of supply chain disturbance is distance/natural disaster,competitors are few,inventory/storage cost is notable part of CGS and customers are not willing to pay,than adoption JIT, moving closer to areas where Raw Material is manufactured/extracted along with value chain analysis proved a successful decision in our case.
    Every successful strategy of any business may not be appropriate or successful for any other business.This depends upon various factors such as product nature,Company strengths,competitive advantage etc.Cost benefit analysis and risk of material shortage must be account for before implementing JIT or any other related strategy.


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    Muhammad Farooq ACMA,CMA USA,APFA,DIFRS,CC(TMI-USA) Director
    Multi Pro Merchants
    Lahore State
    Pakistan
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  • 10.  RE: Inflation and Small Business

    Posted 08-28-2024 12:53 PM

    @Dana Riess, you’re right on point about inflation’s impact! πŸ’Έ How are small businesses handling these cost increases NOW, next 6 months??!! Let’s get the convo going!

    @Muhammad Farooq, awesome tips! Digitalization and JIT systems sound great. How’s the JIT system working for you with all these supply chain hiccups? πŸ€”πŸ”§ Supply chains are baaaaaaaad πŸ‘

    @Javvadi Rao, Value Chain Analysis is cool! Which activities do you find are worth focusing on for best-est-LOL margins? πŸ§πŸ’‘

    @Roberto Mendoza, good call on strategy differences! Got any stories of JIT working or not working for certain types of businesses? πŸ€”πŸ“ˆ

    @Heather Bain and @Javvadi Rao, JIT vs. "Just In Case" is a big topic. When should a business switch from JIT to a safer approach? πŸ› οΈπŸ”„

    @Muhammad Farooq, love the idea of combining JIT with other strategies! Which, how, where, and why, and ---> how do you know they’re working? πŸŒŸπŸ“Š

    Let’s keep this going and figure out how to tackle inflation together! πŸš€

    #SmallBusiness #Inflation #JIT #ValueChain #SupplyChain #CostManagement #FunWithFinance

    My super-thought ==-->> engage #ai --->> AI can position and create short term and mid-range automatic hedges depending on your international book of business and tailoring the hedges to protect you from international counterparty inflation risk. Then, when the host transaction counterparty risk is done (transaction ended, no more receivables, conversions, payables) the hedge is automatically terminated via AI....thoughts?  @Ahmad Jumah 



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    Ilya Ilienko, dual MBA, CPA, CMA
    Board Member / Director
    East Coast - United States
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  • 11.  RE: Inflation and Small Business

    Posted 08-28-2024 02:23 PM
    Thank you, Ilya, for sharing this crucial information. It has encouraged me to consider the significant role AI could play in developing scenarios to help us effectively manage inflation in international markets. By considering the power of AI, we could create advanced predictive models and strategic approaches that provide insights into the global inflation landscape and guide our decision-making.
    I would love to hear any additional thoughts or ideas from colleagues on this topic.


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    Ahmad H. Juma'h, CMA, CPA
    Professor of Accounting
    University of Illinois Springfield
    Illinois, USA
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