Erosion of profitability (so how to manage business survival that now affect business future?)

Inflation in most part of the world is inching up. The effects of inflation to many businesses are critical. It erodes profitability and affects investments in fixed assets for the future. Many businesses fail to understand how inflation affects their external financing requirements and in the absence of new equity financing, it will increase the company’s debt-to-equity ratio. And this combination will spell trouble ahead.

Taking this as a scenario, many may immediately think about debt restructuring. While debt restructuring could be a way, that should not be the ultimate way. Typically, debt restructuring comes at a time of urgency. It has become something both very important and highly urgent. And the reason it becomes urgent is because when it was important, not enough attention and actions was put into it, to pre-empt it. Important matters then develop to become urgent, especially when crisis hits.

?So, the main lesson now, and point of care here in managing current businesses is to take care of every important matter first (and fast) so that it does not turn into something urgent.? The difference between the 2 (important and urgent) is time. And time is the oxygen for businesses to make plans to survive and thrive.

Timeliness and planning ahead is highly critical. Here are a few key points to create continuous opportunities to grow the top line and remain solvent:

?1.??????Business scanning – the need to explore by scanning related business opportunities has never been of greater importance than now. Many business models are disrupted and need transformation. Business scanning provides this transformation option by re-drawing different business canvases on all key strategic factors and the complete overview of the company's workings. The real transformation test here is the ability to demonstrate the financial outcomes as a proof of a clear feasibility of the business transformation.

?2.?????Innovate – think outside of the normal convention and understand what are the pain points that can be innovated. In fact, if you can anticipate pain-points, that is even better. Innovation e.g., through design thinking that link to value creation and empathize on the customer journey is a good start. It is designed to address an unmet pain point and to generate the willingness to pay for the solution.

?3.?????Partnering collaboration – it is not possible to grow big without any external help and the right network. Partnering e.g., in strategic development for growth is one of the fastest ways to manage cost, expand, avoid costly efforts and leverage what you don’t have and learn quickly. It can be partnering in supply chain, sharing audience or in advisory exchange.

?4.?????Business building – this is deemed to be one of the most valuable organic growth pathways compare to other modes of organic growth. Building business within a business has more endurance for longer term value creation. It generates new enthusiasm for value creation with more accountability and calculated risk taking.

?5.?????Strategic cost and pricing – for businesses that run on multiple offerings, strategic cost allocation and methodology is a very important equation to profitability. Allocation and methodology that are based on a mechanical formula but without clear distinct strategic drivers tend to overload some and underload the others, which can bring detrimental effects. This also affects pricing strategy which is a key mechanism to gain new market, leading to profitability.

By leveraging on strategic steps, businesses can combat profit erosion that hampers their future. Business solvency requires business innovation, strategic methodology and a change of mindset. Any kind of new endeavor will always require risk taking and management expertise to produce net positive return for the business. ?It is imperative to have an open understanding of the current situation, ability to anticipate what may come and the willingness to be prepared for it.?