How to navigate inflation as a business owner

Inflation is still very much a factor in today’s business environment – the most up to date inflation rate is 2.6%, which is down slightly from 2.8% in February and 3.0% in January. Whilst this is an improvement on recent higher inflation rates, it’s important to remember that lower doesn’t necessarily mean no impact. Several factors continue to drive inflationary pressure, such as rising energy costs, ongoing supply chain challenges, and increased wages and production costs. These costs are still working their way through businesses, often quietly eroding margins if they’re not actively managed.

The current 2.6% inflation rate can still distort performance if not accounted for. For example, if you’ve achieved 10% revenue growth over the past year, around a quarter of that may be down to inflation, not real business growth. If inflation drops off your radar, you run the risk of margin squeeze, cost creep, and decisions based on inflated rather than true figures. As inflation becomes less volatile, the task now is to keep it firmly in view and build it into your planning and decision-making processes to support sustainable, long-term growth.

Why Inflation Still Matters

Even at moderate levels, cumulative inflation can reduce purchasing power. Input costs often remain “sticky” and don’t come back down. Wage pressure remains a structural cost (especially with minimum wage increases). Risk of “margin creep” - erosion of profitability without obvious signs. Although 2.6% inflation may not feel urgent, it still distorts the numbers you rely on to make good decisions. For example, if your business reports 10% sales growth, and inflation is running at 2.6%, your real growth is only 7.4%. That 2.6% difference is significant when evaluating whether you're truly improving performance or simply keeping pace with rising prices. Inflation also continues to affect input costs, customer behaviour, and supplier pricing, so it’s still influencing your business, even if more quietly than before.

Key Actions Business Owners Should Consider

Review Your PricingIf you’ve had cost increases from suppliers or overheads, have you reflected that in your own pricing? Many businesses absorbed price increases during the high-inflation period and haven’t fully passed them on. Now is a good time to revisit your pricing strategy. If your overheads or supplier costs have risen, it's important to ensure your pricing structure reflects your current cost base. Reviewing and adjusting your pricing not only protects profitability but also ensures you're building your business on sustainable financial foundations. In addition to adjusting prices, consider value-based pricing - aligning your prices with the value you deliver to customers rather than just covering costs. Tiered pricing or bundling can also offer flexibility to different customer segments.

Now is a good time to:

• Review your pricing structure.
• Make any necessary adjustments.
• Ensure your pricing reflects your current cost base.
• Explore value-based or tiered pricing options.

Factor Inflation into Your PlanningInflation should be a regular feature in your financial planning. That means building it into your sales targets, financial modelling, and budgets. Using inflation-adjusted figures gives you a more accurate view of your performance and helps distinguish between genuine growth and figures that are simply keeping pace with rising costs. Adjusting for inflation in your planning ensures you're evaluating true business performance, not just responding to higher prices. It also supports more informed decision-making as you set targets or allocate resources.

Inflation should be built into your:

• Sales targets.
• Financial modelling.
• Budgeting and forecasting.
• Scenario planning and investment decisions.

Review and Manage Supplier RelationshipsIf you've experienced supplier price increases in recent months, don't treat them as non-negotiable. In many cases, it's worth having a face-to-face conversation with key suppliers to understand the reasons behind the increases and explore whether more favourable terms can be agreed. This might include negotiating extended credit terms or locking in pricing for a defined period. It’s also wise to regularly benchmark supplier quotes. Keeping alternative options in view helps maintain leverage and ensure value.

If you’ve had recent supplier price increases:

• Consider requesting a face-to-face meeting to discuss them.
• Use this as a negotiation opportunity.
• Explore fixed-term pricing agreements.
• Keep your options open by regularly reviewing comparative quotes to make sure you’re still getting the best value.

Monitor for Margin CreepMargin creep occurs when costs gradually rise but pricing doesn't keep pace, leading to a slow and often unnoticed erosion of profitability. To counter this, keep a close eye on your gross margins and routinely assess your cost structures. A small gap between cost increases and pricing adjustments, if left unchecked, can add up significantly over time. Active monitoring ensures your margins remain protected and your business growth remains real and sustainable.

To stay ahead:

• Track your gross margins closely.
• Revisit pricing and cost structures at regular intervals.
• Ensure you’re not losing margin without realising.

Streamline Operations and Reduce WasteInflation is a prompt to improve internal efficiency. Cutting unnecessary expenses and streamlining workflows can help absorb rising costs without sacrificing quality or increasing prices.

Use this period to review:

• Operational inefficiencies or duplicated processes.
• Automation opportunities to reduce labour costs.
• Inventory levels to avoid overstocking or tying up cash.
• Vendor contracts and recurring expenses for savings opportunities.

Diversify Revenue and Explore New OpportunitiesBusinesses with multiple income streams are more resilient in the face of inflation. Diversify by exploring adjacent offerings, subscription models, or entering new customer segments. By innovating and expanding, you reduce dependence on inflation-sensitive parts of your business.

Consider:

• New or re-packaged product or service lines.
• Subscription or tiered pricing models.
• Expansion into new demographics or geographic markets.

Retain Customers Through Value and LoyaltyInflation affects your customers too. Retaining them means continuing to deliver value in a way that resonates even when prices rise.

Focus on:

• Strengthening customer relationships through service and transparency.
• Communicating clearly about price changes and why they’re necessary.
• Introducing loyalty programs or added-value features.

A strong brand and high-value customer experience can increase price tolerance and help sustain sales even during inflationary periods. Inflation is still shaping the landscape for business owners. The key now is making sure it doesn’t drift out of view. Businesses that continue to monitor and respond to inflation in a measured, proactive way will be better placed to protect profitability and make informed decisions. Whether that means adjusting pricing, reviewing supplier terms, refining your planning models, or streamlining operations - now is the time to make sure you’re not letting inflation quietly eat away at your progress.

How can we help?

At Oldfield, our tax consultants are extremely experienced and knowledgeable in this field, with the firm having nearly 50 years of experience. Our approach to profit extraction is specifically developed and designed with business owners in mind. However, it is important to note that every situation is unique, and unfortunately there isn’t a one size fits all, or guaranteed solution. If you'd like support in reviewing your pricing strategy, updating your financial modelling, or building inflation into your forward planning, our team is here to help. click here to find out more.

If you feel you would benefit from a conversation regarding anything discussed in the above article, please do not hesitate to get in touch by using the form via the button below, and a member of our team will be in touch to arrange a call. We are here to support you in navigating these complexities.

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Please note: This article is provided for information only and was correct as at the time of writing (21/05/25). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.