Just as when so many companies pulled together to deal with apparently insoluble problems after Coronavirus first struck in 2020, we are back in another major crisis as acute interest rate pain is being piled onto soaring cost increases for both consumers and businesses. As with the pandemic, this is a time for entrepreneurs to look beyond their own turnover and profits and recognise that they, their staff, their suppliers, their landlords and their customers are all in it together. In other words, being a good business citizen. All stakeholders are being affected in one way or another and need to work together to get through to better times.
Most sectors have labour resource and cost issues, so this is no time to treat the workforce badly or inconsiderately. The talk is all of recruitment challenges, but retention is every bit, if not more, important. Recognising that staff have cost of living pressures and rewarding them adequately is key, even if it may mean a bottom line profit hit in the short term.
If staff are worrying about paying their energy bills, feeding their children and now making their mortgage or rent payments, they aren’t concentrating on their jobs and productivity will suffer. Far-sighted businesses are setting up confidential ‘hot lines’ for staff to share their anxieties and making cash grants available where necessary. Being kind to staff will always pay dividends, never more so than now.
The instinctive reaction to upward input cost pressures is to transfer the problem back down to suppliers by seeking reduced prices, volume discounts, or other reductions. Whilst understandable, supply chains are not infinitely flexible and are damaged at the procurement department’s peril. Suppliers have cost pressures too, loans to service and staff to keep happy. Honest conversations with suppliers can go a long way in breaking down barriers and sharing cost pressures.
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There’s little sympathy for commercial property owners among their tenants or the wider business community, stemming from the past world of long-term, inflexible leases with upward only rent reviews and potentially disastrous dilapidation clauses. Never the less, landlords have been the whipping boys for some time now, starting with abusive retail CVAs and then the draconian restrictions on their enforcement powers during the pandemic. They too have finance obligations to meet and rent-to-value covenants to worry about. Tenants also need them to be sufficiently financially robust to share improvement/repurposing costs and grant rent free periods.
These may be end consumers or business users of goods and services; what most of them share right now is financial pain to one degree or another. Challenging the relationship with them by continually passing on cost rises in increased prices is the short road to driving some customers away to competitors. If prices have to be hiked, explain why in detail and give as much notice as possible. Communication is vital here as there are some difficult subjects to cover with customers, but this will go a long way in retaining key customers by demonstrate that at least some of the cost pressures are being absorbed.
Seeing the bigger picture, taking the long view
None of this makes sense on a strictly short-term basis and will be tough for managers, staff in performance bonus schemes and owners, but that doesn’t make it wrong. Some forbearance now and co-operation with stakeholders will preserve the business and eventually make it stronger. The choice comes down to profiting now or prospering in the long-term.
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