How Alberta businesses can navigate high inflation
We review the impact of inflation on Alberta businesses and what you can do to mitigate the effects.
By ATB Financial 30 June 2022 5 min read
The past two years have thrust business leaders into a whirlwind of variability. Every corner of the planet—and every business—has been impacted in some way by a global pandemic, international conflict and the resulting economic inflation.
According to Todd Hirsch, ATB vice president and chief economist, the provincial economy is forecast to rebound to pre-COVID levels toward the end of 2022, but inflation, rising interest rates and fallout from the invasion of Ukraine are expected to temper growth next year. These factors, alongside other ongoing economic challenges, will produce short-term perks but greater uncertainty in the future. Though, we’ve seen that ambiguity can lead to unexpected (and positive) transformation.
While there are many challenges facing Alberta businesses, there are also opportunities to adapt to this changing economy. So how can you make business decisions to lessen the impact of these economic trends?
Strategies to combat inflation
Inflation is the top story of 2022, and for good reason. Canada’s annual rate of inflation hit 7.7% in May, a 31-year high, surging on higher energy and commodity prices following Russia’s invasion of Ukraine.
Many Alberta business owners will be experiencing a change to their costs or expenses as a result of this inflation. Here are a few tactics you can use to offset growing costs:
- Review your budget with a fine tooth comb. Analyzing your budget and company expense sheet will help you determine your actual spending versus what you expected to spend, and identify areas to cut back. Additionally, with rapidly rising costs and demand, we recommend managing your cash flow closely and developing a 13 week rolling cash flow forecast.
- Consider local suppliers. If possible, look into suppliers local to you (whether within the province or country) that would be less impacted by global challenges and rising shipping costs.
- Examine your marketing budget. Review your marketing initiatives and determine which campaigns or expenses have a positive return on investment. You can choose to cut budget from underperforming initiatives, or reallocate to higher performing ones.
Having a deep understanding of how cash is flowing in and out makes you better able to make decisions based on the overall impact to your business. If you’re unsure how to create a budget or manage your cash flow, a relationship manager or one of our Entrepreneur Strategists can guide you through the process.
Supply and a new perspective on business operations
A Statistics Canada survey from March 2022 found that over half of Canadian businesses expect product and supply issues to continue over the next six months domestically. Navigating supply chain issues amongst increased sales demand—which is projected to sustain—can be complex.
According to the Business Outlook Survey conducted by the Bank of Canada, surveyed businesses are tackling ongoing supply chain issues by trialling new suppliers, inputs and transportation options, reducing their catalogue of products, delaying orders or raising their prices to temper demand. Here are some strategies that could help your business navigate supply issues:
- Reevaluate or renegotiate with your suppliers. If you haven’t evaluated your suppliers recently, now is the time. Make sure your suppliers are integrated into your business, working seamlessly with you from ordering to invoicing. Work with your suppliers to create the best practices for both parties. If you’re considering a domestic supplier, make sure that work processes offset the increased cost of labour. If an international supplier is the only option, work with them to maximize shipping container space and reduce transport costs.
- Reconsider your product offerings. You can streamline your product offerings based on which inputs are easier to source or less risky to obtain. Or opt for new supplies or inputs that offer more affordable contracts.
- Adjusting your sales. Persisting supply chain issues have caused many companies to delay orders, reduce the number of products available, add wait times to product descriptions or turn customers away temporarily. While these disruptions may be unavoidable, communicating with your customers is key. Most consumers are aware of ongoing supply chain issues. Through transparent and honest communication, you’ll be able to manage their expectations and continue to build relationships based on trust that will outlast any economic downturn.
- Forge new and unexpected partnerships. A potential takeaway from this kind of supplier shuffling could be forging new and unexpected partnerships. As the World Economic Forum writes, supply chain issues “have led to new alliances and co-development ventures between original equipment manufacturers (OEMs) and suppliers.”
Solutions for staffing
With the provincial unemployment rate sitting at around 5.3%, labour challenges remain ongoing. “Supply shortages may start to see some relief in the next year, but the labour shortage will likely persist, slowing the full recovery of the supply chain.” says Kris Fleckenstein, Managing Director, Strategy & Performance Enablement at ATB Business.
With that in mind, what alternatives can businesses look at for staffing?
- Evaluate employment types. If your company is struggling to maintain full-time staff, you could hire part-time workers, contractors or freelancers. During the summer months, create student job postings for short-term opportunities. If your business circumstance allows, hire less experienced employees that can be trained for the position or individuals close to retirement.
- Reevaluate your attraction and retention efforts. This may reduce the need to look for new staff. Evaluate the hiring platforms you’re posting positions to and the way you communicate your company’s work environment. If your business allows, consider offering remote options for employees.
- Opting for technology. Bring in technology to support however it can, whether automating accounts payable, phones or full out robotic assembling lines. A McKinsey report suggests that new technologies can deliver improvements in manufacturing and supply chain operations. The report shares an example of an electric vehicle battery manufacturer who was able to increase labour productivity by 75% through the use of AI and advanced analytics.
If you’re considering technology investments, we recommend that you talk with your financial institution to learn more about financing options.
“To be restored, you must be transformed,” Hirsch said. “Alberta’s economy has been through a lot in the last eight years: two major oil downturns, three years of recession peaking in 2020, natural disasters and the pandemic. That’s behind us, and we are now in a transition year.”
While there are clear obstacles facing Alberta businesses, we also see strategies to adapt to these changing economic times. If you’re looking for ways to navigate the issues you’re facing in this economic environment, your Relationship Manager is here to guide you. They’re here to give you the products, services and knowledge you need to adjust your business and feel empowered to face the future.