Robin Royals, President, RC Royals & Associates, LLC

As a young commercial loan officer at Michigan National Bank of Detroit, I lived through a highly inflationary period during the Carter administration. The prime rate of interest was 11%. Prime rate is the lending rate for the best borrowing customers of a bank. Businesses suffered, and the overall economy came to a standstill.

In banking, business management capabilities are measured by how a business performs in good and bad times. It is much harder to sustain consistent performance in challenging economic situations. We would analyze a spread of financial statements spanning a five- to six-year period to find the operating performance trend over an extended period. The hope was to see how management reacted to deliver consistent results under both circumstances. Can the company manage the expense line as well as the top line when revenue falls during more challenging economic times?

We have experienced an unprecedented period of growth in the United States economy. Many legendary leaders have ridden on the coattails of this positive wave and built a reputation for exceptional leadership. But many have never been tested by the challenges of an inflationary or down economy.

The model used at the bank to analyze the capabilities of a management team does not work well in today’s world. The actions necessary for success during current inflationary times are not even in the playbook of today’s managers.
The thought of focusing on operations and the expenses associated with winning in tough times is beyond the pale for many of these small businesses.

The challenge is to complete all of the basic activities associated with running a successful business. Everyone likes to work on the company’s front end- interface with customers and bring in new sales. In times like these, the focus shifts to the expense side of the income statement. Review five of the most effective strategies to get through difficult times:

Control Spending. The company needs to create transparency and visibility into the business’s operating expenses. This enables the business owner to see high areas of spending and determine what might be done to curtail and control these expenses.

Strategic Spending. Determine what expenses are necessary. Are all expenses incurred essential for the business’s success during these challenging times? The realization is that inflation will not last forever, and it is a matter of tightening your belt to get through these difficult times to get on the other side of this inflationary period. There should be scrutiny placed on every dollar spent in the company.

Understand The Expense Drivers. The amount on the expense line is the result of activity within your company. It is essential to understand what drives that expense total. Are you doing things within your business that were necessary in better times that could now be adjusted or dramatically changed during the current challenging times to help improve the company’s profitability?

Eliminate Work. Now is an excellent time to take a hard look at your staffing and the activities associated with running your business. Are you running your business processes in the most efficient manner to meet customer expectations and deliver profitability?

Automate. Now that you have streamlined your processes and taken out as much redundancy and waste as you can, look at ways to leverage technology and bring automated efficiencies to your business. Use this strategy as the final step because it is difficult to automate a process before fully understanding how it works manually. Without understanding the underlying manual process, beginning an automated solution will create more mistakes.

For further information on strategies to overcome inflationary challenges, reach out to Robin Royals at (913-963-3848) or Excerpts for this article were taken from the “ROYAL Methodology for Strategic Success” found in Robin’s upcoming book, “A Safe Pair of Hands.”