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Extra Features and Video Online FloristsReview.com R E A D O N L I N E 57 calculations see if it makes sense." Beefi ng up stock of critical items can be a smart move, even in these inventory-cutting times, says McQuaig. Given the continuing supply-chain issues, stocking out of a needed item can result in the loss of important customers. e decision on overstocking key items must be made on a case-by- case basis. "Generally speaking, it's a good idea," says McQuaig. " e danger is the possibility of running out of cash if you do not have enough working capital." Companies can obviate such diffi culties by running the monthly or weekly cash-fl ow forecasts described earlier in this article. RAISING PRICES Asking more for merchandise and services is another way to adjust cash infl ows. "Businesses are extremely hesitant to raise prices when they don't have to," says Conerly. "And they often get pushback from their salespeople. But the fact is, buyers are accustomed to seeing price increases in infl ationary times." Rather than apply a set percentage price increase across the board, experts advise a dynamic strategy that is applied by channel and customer to maintain or increase profi ts while responding to any price resistance. Maintain or lower the prices on KVIs (key value items)— products that have a high profi le among current shoppers. Raise the prices on items that are of lesser importance. Price changes must be carefully communicated. "Give the white-glove treatment to tier one customers by reaching out and explaining how your costs are rising," Beaver suggests. "Communicate to them that the price rise is only temporary." One approach is to tell your most important customers that you are absorbing 20 percent of the price increases and passing along the other 80 percent. Another is to separate out any fuel charge increases from the delivery costs and explain you are passing only them along. "A company will have more leverage to raise prices if it has off ered great service and maintained inventory." Above all, avoid delay. "Businesses are most successful at raising prices when they do so quickly," says Anderson. "Customers are more willing to absorb increases during infl ationary times when they can see it makes sense in the marketplace." Waiting too long risks losing the opportunity, especially if infl ation leads to a serious economic downturn. "No one wants to absorb a price increase during a recession." NEW RULES Today's return of infl ation has changed the operating paradigm for retailers large and small. e Great Recession of 2008 had sparked the habit of relying too much on just-in-time delivery of supplies to trim cash investments. Further, the recent willingness of customers to accept price increases was exacerbated by supply-chain disruptions. Now retailers must modify their cash fl ow management, inventory practices and pricing policies to refl ect both rising costs and supply-chain disruptions. " e booming economy of recent times has allowed companies to pay less attention to market developments and still be fi ne," Anderson says. "But now, in a time of infl ationary price increases, they have to do better. e job of managing is tougher than ever before." DEALING WITH BANKS By carefully managing cash fl ow, businesses can alleviate the profi t erosion caused by infl ation. In this article, experts describe how accelerating receivables, delaying payables, raising prices and fi ne-tuning inventory can help preserve the bottom line. Left unattended, a decline in profi ts can result in a dangerous fi nancial condition: a breach of the terms required by loan agreements. "Banks look at covenant violations closely, so borrowers need to ensure that any squeeze in the relevant ratios—such as income to debt—will not create problems," says John McQuaig, CPA, M.B.A., managing partner of J Kramer and Associates, a Wenatchee, Wash.,-based CPA fi rm. "Sometimes there is no quick fi x for resolving them." It's smart to be proactive. "If you know you're going to have a covenant violation, you're better off informing the bank and explaining to them how you're going to work your way out of it," says McQuaig. "On occasion, the bank might change a ratio on a line of credit if you've been in good performance and they can see this is not going to remain a problem." McQuaig gives an example: Suppose a company experiences an increase in interest rates because of infl ation. As a result, they break even in a year in which they would normally make a profi t. The company could inform the bank that their infl ation-savvy customers are now willing to accept price increases. As a result, the business can increase its pricing over the coming year to resolve the covenant violation.

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