Mike Clark's Business Bites: Increase your prices if cost of stock increases

The Evergrande headquarters (left) in Shenzhen, China. Photo / AP

Have you put up your prices? Have you been affected by transport price increases?

Have you been affected by shortages of material? Are you struggling to get staff?

Covid is lingering like a really bad dose of flu. Its impact on the health of individuals, businesses and the country is beginning to show. You need to watch your personal health, your team's health and the health of your business. On top of being aware of the Covid health order requirements, it is important to look beyond the immediate mask and scanning requirements.

Keeping your eye on the news and keeping your ear to the ground will quickly highlight the world still has a long way to go before we see a sustained recovery. Being aware of this will allow you to be well prepared.

Any business must produce a profit and create cash flow. Without these two things you will simply not survive. Have you put metrics in place to monitor both of these and keep your finger on the pulse? This is going to be incredibly important over the next two years.

Being aware of what is happening will help you plan ahead. Two areas that immediately come to mind are the increases in transport costs and Evergrande building company.

The cost of transporting a 40-foot container into New Zealand has gone up more than 500 per cent. The minimum wage has increased. Internal transport costs have increased. Transport operators have had to pass these huge increases on to their customers.

If you have been affected by this, have you increased your prices recently?

Having lived through hyperinflation in Zimbabwe, one of the biggest mistakes I saw companies make was selling their current stock at their original buy price plus their standard mark-up, rather than selling based on replacement cost plus mark-up.

This can seriously impact a business' profitability and cash flow. Increase your prices if you have received prices increases. If you do not pass the cost on to your customers it has to come out of your profit (unless you can streamline operational costs).

Many people in New Zealand had never heard of Evergrande until news of its inability to service its loans hit headlines worldwide. Evergrande Real Estate Group is the second largest property developer in China and, with debt of more than $330 billion, it has more debt than New Zealand's GDP.

This matters for us for a multiplicity of reasons. If the Chinese government does not bail Evergrande out, which is possible, it could potentially cause a worldwide recession. Even if it is bailed out, the impact upon the building industry in China is going to have a ripple effect on our building industry.

Many of its suppliers also supply NZ companies and an interruption in supply will slow our industry. How will that affect you?

Being prepared, taking appropriate action quickly and staying abreast of change dramatically increase your ability to stay healthy and grow.

• Mike Clark is director and lead trainer and facilitator at Think Right business training company.