Cost pressures broadening and growing stronger

The #1 concern noted in Vistage’s recent report Decision Factors H2 2018, is rising costs.

As we near the end of the current economic cycle, for the first time, in a long time, in addition to a typical cyclical tightening, we are also experiencing inflation. Wages are rising, the Fed is raising short term rates, and commodity prices are rising. Add to that the tariffs and businesses are under cost pressure that has not been with us for a long time.

The resulting profit declines are a double-edged sword as the impact is on both you and your customers.

What to do?

Joe Gavin, Vistage chief research officer, offers these suggestions:

  • Raise your prices – 56% of Vistage members are already saying they have, or plan to raise prices. Now is the time to get ahead of the expected continued pressure on price.
  • Talk with customers about their long-term plans – A transparent conversation can lead to a strategic discussion of how you can best serve your customer in this environment.
  • Use technology to lower costs –  Whether its cloud computing, updating your ERP or CRM or even investing in robots and AR, the cost of these technologies is going down while the cost of labor is rising and the labor market is tightening.
  • Restructure your debt. If you haven’t yet restructured your debt, this is probably your last chance to do so at a decent price, says Joseph Quinlan Managing Director and Head of Market Strategy for U.S. Trust, BofA, Quinlan.

And one note of caution. What is happening to you, is also happening to your customers and suppliers. Be sure to monitor both to ensure you don’t extend credit unintentionally. For some insight into which segments of the economy, i.e. industries, to watch most closely, check out this blog from ITR Economics: Director’s Cut: Are Your Profits Following the Crowd?

 

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