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  • Leonard Brecken

How to Deal With Rising Cost Inputs

Given the growing evidence that cost pressures are on the rise tied to both where we are in the economic cycle and the trade issues that recently arose. The most common solution to rising wages or material costs is simply to raise prices and pass them along to the buyer of your products/services. The problem with that is rising end prices will likely negatively impact demand and thus mute the benefit of raising prices in the first place. That's how recessions start!

An alternative to price increases if businesses properly deploy a profit management system or a method to measure, monitor & analyze where and how profits are made then they may have other ways to offset rising costs. For example, one can do an expense audit or review vendors used to seek lower cost input alternatives. Further certain products can be redesigned to use less materials whether that be in the product itself or in its packaging. On the wage front one can review the overall compensation package that includes wages to see if savings can be accomplished. In addition, the possibility of reviewing turn-over, productivity and whether changing outsourcing practices can be considered. Successful business constantly do all of these things through effective Profit Management using a dedicated professional to do so. CPAs are not equipped to do this full time nor have the time to do so.

The most import thing to remember is to anticipate vs react to cost input changes. The more you react the less time you have to adapt and less flexibility to do so.

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