How to Use Planning Software & Properly Prepare for Inflation at Your Business
Consumers Are Quick to Criticize Business Responses to Inflation – Planning Software Can Help You Balance Your Needs with Your Customers’ Needs
Inflation is here. After a 6.8% rise in the consumer price index from November 2020 to November 2021 and a 9.6% increase in annual unit labor costs in Q3 2021, 2022 has officially become the year in which businesses need to be increasingly careful about their spending decisions.
All business leaders know that forecasting is an art form but, in today’s volatile economy, predicting the next few months can feel like an exercise that only a fortune teller with a crystal ball can complete. Fortunately, there is a way for organizations across all industries to effectively “predict” the future using planning software.
Why Are Incorrect Predictions Such an Issue Right Now?
Few economic events are as worrisome to businesses as rapid inflation. Not only does inflation cause consumers to panic and act unpredictably, it also creates a precarious situation in which consumers closely — and critically — scrutinize their preferred vendors’ post-inflation responses.
It is reasonable for these responses to touch a wide range of key financial items, including:
Many companies are currently feeling the need to raise their own prices in response to inflationary pressures, yet price increases can deeply impact consumer sentiment and buying habits. Raising prices too much, too quickly, is likely to drive your customers to actively seek out your competition.
Salaries & other employee-related expenses
Companies are finding that awarding extra compensation to employees to match rising cost-of-living expenses is a good way to maintain existing talent during the “Great Resignation,” but employee expenses can add up quickly when you also must increase your offerings to attract new talent. Since employees are already the largest expense to a company, and labor costs are nearing double-digit quarterly increases, accurate labor predictions that leverage workforce planning tools are critical for ongoing business success.
Adding to this complexity, the social media world is quick to criticize mass layoffs. To avoid public censure, your company should accurately “predict” future staffing needs and balance those costs with forecasted revenues.
Supplies & transportation costs
The combination of inflation plus ongoing supply chain and logistics issues is likely to cause significant price increases across the manufacturing sector, distribution, and other industries with considerable supplier expenses. This further increases your costs for everything from supplies and shipping to employee necessities like laptops – but determining how to distribute those costs across your products and services can be a delicate process.
Note that inflation does not always touch all aspects of your business. With the pandemic as an influencer, certain areas of your budget may not be impacted by inflation. Travel & entertainment expenses and office rent are two key examples, due to reduced corporate events and entertainment activities as well as the continued popularity of the work-from-home trend. For accurate forecasting predictions and strategic planning, it is important that your company maintain comprehensive insight into the true effects of inflation.
How Planning Software Helps Your Organization “Predict” the Future
In a world heavily influenced by social media, consumers will be quick to respond to any changes you make to combat inflation, from price increases to “shrinkflation” adjustments. Unfortunately, one angry customer can swiftly become an online mob impacting your quarterly revenues and shareholder confidence.
Luckily, pacifying the “mob” can be as easy as maintaining an agile response backed by the confident decision-making that comes from having accurate, trustworthy data available to you in real time.
Today’s leading corporate performance management (CPM) solutions include comprehensive planning software featuring complex modeling capabilities that make it easier to automate and manage planning processes during times of uncertainty.
Of course, each business has unique needs, but here are a few ways that companies use various planning tools to craft and fine-tune their inflation-response strategy:
Driver-based planning / ‘What If’ planning
With items like inflation that can impact a large number of financial line items in a budget, companies prefer to use a modern CPM tool to isolate inflation itself as a driver. This advanced functionality allows business leaders to save time and easily answer “What If” questions on the fly because they can change a specific driver in a single place – and then their planning software will automatically and instantly update any line item affected by the driver.
Easily save time by creating and analyzing different scenarios, such as High/Mid/Low inflation rates, so you can chart a course through all your options in today’s rapidly shifting economic landscape.
Rolling budgets & forecasts
Fiscal-year planning is good for stable economies, but to ensure a continuous future outlook it makes more sense to look further into the future. Shifting to a rolling forecast can help you identify and respond to potential issues sooner – many companies start with an 18-month forecast.
Cash flow forecasting
In a fast-moving situation, it is a waste of time to spend limited resources on manually comparing reports and forecasts. A better solution is to use interlinked Profit & Loss and Balance Sheet planning models that support automated cash flow planning. This keeps management abreast of company liquidity and cash position, which guards against potential issues while indicating potential inflation-related business opportunities.
Top-down forecast modeling
Bottom-up forecasts can take a lot of staff time, especially if done ad hoc, monthly, or quarterly. Using top-down forecast models allows a single person to automatically create accurate financial forecasts for the entire organization, which speeds decision-making time significantly.
Is It Time for Your Company to Think About Planning Software?
In a time of rising inflation and continued uncertainty, your Finance team is likely to experience a wide range of unknown conditions that require an agile, speedy, and decisive response across the company.
When you have a modern corporate performance management software that includes comprehensive planning tools, your organization will have its very own “crystal ball” that helps model future predictions and scenarios. This helps you prepare for whatever comes your way.
Solver gives you access to hundreds of financial planning templates and reports, plus our extensive template glossary and experienced staff who are always happy to share their expertise. Solver is committed to helping you with all your planning and reporting needs, so you can proceed confidently into your business’s financial future.