5 Easy Ways Small Businesses Can Fight Inflation
If you own or operate a small business, you know how inflation can affect your bottom line. You are also aware that the U.S. has recently experienced an inflation rate higher than we have seen in decades.
Author:Gordon DickersonReviewer:Habiba AshtonAug 12, 202228 Shares712 Views
If you own or operate a small business, you know how inflation can affect your bottom line. You are also aware that the U.S. has recently experienced an inflation rate higher than we have seen in decades.
With those facts in mind, you have two options: Sit tight and hope the rate comes down soon, or take action to mitigate high inflation’s impact on your business. The first comes with great uncertainty. The rate may remain elevated, drop and stay down, or drop and rebound.
The second strategy is sure to help your bottom line to some degree. Moreover, it is sure to eliminate the helplessness that can be so discouraging for business owners, managers, and staff. The actions cover many areas, from improving cash flow to enhancing your business insurance coverageto account for higher replacement costs.
How Economists Measure Inflation
As a precursor to taking action to help your business fight inflation, it is helpful to understand how economists calculate the inflation rate.
The rate indicates how the cost of goods and services changes over time. Experts determine it using the price of a specific set of goods and services, as noted in indices like the Producer Price Index and Consumer Price Index. The inflation rate is spoken of as a percentage. For example, economists might say that the current inflation rate is 6 percent.
Defining inflation is simple. Controlling it is another matter entirely. Interest rates are the primary “lever” for affecting inflation, but altering them does not cause an immediate change. Like steering a barge, it takes time for the economy to alter its course. And changes must be made carefully, as rapid deflation comes with consequences of its own.
The U.S. Federal Reserve has taken action to help bring inflation down, with a target of approximately 2%. Will those actions be successful, and how long will it take for the interest rate changes to have an effect? Only time will tell.
Proven Practices for Protecting Your Business From Inflation
No company can completely insulate itself from the effects of high inflation. However, by taking the steps below, you may be able to make rising prices—today or in the future—less painful for your business.
- Automate business processes.Letting technology handle repetitive tasks currently performed manually saves you money and can increase efficiency and accuracy. In addition, it frees the workers previously performing those tasks to take on higher-value projects.
- Improve cash flow.If you frequently let bills go beyond their due date, that leniency can hurt you since the money not in your bank account is not working for you. Pursuing outstanding debts more urgently and incentivizing debtors to pay promptly are good practices to implement.
- Reconfigure supply chains.Maintaining the shortest workable supply chains is wise under any conditions. It is especially important today. Not only can taking that approach save you money, but it also lowers your risk of being affected by supply chain disruptions that have become much more common in recent years.
- Reassess service contracts.Many businesses pay more for services than they should. In favorable economic conditions, that fact is easy to overlook. In today’s economy, companies must eliminate as many unnecessary expenses as possible. Consider renegotiating contracts where possible and stopping unneeded services entirely.
- Automate business processes.Letting technology handle repetitive tasks currently performed manually saves you money and can increase efficiency and accuracy. In addition, it frees the workers previously performing those tasks to take on higher-value projects.
- Update business insurance coverages as needed.Inflation increases the replacement costs of business assets. If you suffer a loss and the policy limits you set previously are no longer high enough, you can be left with a significant out-of-pocket expense. Consider talking with your business insurance company and asking if you need to increase the limits on any policy to compensate for inflation.
Be Proactive To Prevent Inflation-Driven Losses
You do not have to be at the mercy of a high inflation rate. Instead, you can be proactive about protecting your bottom line. Then, as Benjamin Franklin astutely observed, every penny saved is a penny earned.
Gordon Dickerson
Author
Habiba Ashton
Reviewer
Latest Articles
Popular Articles