Small business owners’ key insights show strategies you may take to mitigate the impact of inflation on your company.
Streamline and automate processes.
Stefani discovered that restructuring his company’s warehouse resulted in cost savings. “We spent $5,000 on new shelves,” says the narrator. We discovered that it significantly increased productivity after installation.”
Ben Johnston, COO of Kapitus, a provider of development finance to small businesses, argues that improving processes may entail looking into automation for your company. “Re-examine processes as labor costs continue to rise,” he recommends. “Could time-consuming tasks be automated?” Is there software that can automate business procedures such as scheduling, order taking, billing, and payment collection? Is robotic processing a viable option for producing a product or finishing a repetitive task?”
Analyze profit margins.
“Pay close attention to your profit margins,” says e-commerce entrepreneur Sam Barrante. “Begin by reassessing your costs, and then consider the margins you’ll face in today’s environment. After that, start looking for ways to boost those margins while maintaining high-quality products and services.”
Improve productivity.
The higher your profit margins are, the faster and more efficiently you and your employees work. “Use productivity-tracking devices and applications,” Cassel advises.
Cut expenses when and where possible.
Bradley Katz, CEO and co-founder of Axon Optics, a therapeutic eyewear company, suggests cutting costs wherever possible. “Think about shrinking your workspace,” Katz advises. “For example, my company has a hybrid remote/in-office approach, which allows us to relocate to a smaller, less expensive location.”
Check to see whether your firm is paying for any products or services that aren’t being used, and if so, cancel them. Consider using different materials. You might be able to save money by using other goods or ingredients.
Stock up on supplies now.
By stockpiling up on basic supplies, Evan McCarthy has helped protect his company from inflation while also solving supply chain difficulties.
“McCarthy, the president of Sporting Smiles, which sells personalized dental goods, adds, “We renovated our warehouse and now have pallets full of materials going to the ceiling in the 10,000-square-foot building.” “We stockpiled up because the price of supplies was rising every time we ordered them. In 2021, we saw three significant increases in our cardboard box supplies.”
Also, because prices are certain to rise, consider renegotiating contracts with suppliers and purchasing significant equipment now.
Raise prices judiciously.
While raising prices isn’t ideal, it might be a good way to offset inflation’s impact on your company. Avoid alienating clients by imposing steep price hikes across the board. Instead, gradually increase prices in little increments while remaining strategic. Choose locations where customers will be less likely to see you.
Be ready for new customers.
“Inflation creates new customer segments automatically, so go after them,” says Stuart Robles, a partner at Briggs Capital, a small and medium-sized business mergers and acquisitions firm, and co-author of The New World of Entrepreneurship: Insiders’ Guide to Buying and Selling Your Own Business in the Digital Age.
“Many people be frightened by inflationary eras,” says Robles. “As a result, previously unreachable client segments and market niches may become accessible as your organization is viewed as a beacon of light in terms of possibly cheaper pricing and rates.”
What strategies do small firms use to combat inflation?
A company loan might help you keep up with client demand if you need more working capital. Almost half (45%) of small business owners polled in the Small Business Index have taken out a loan to deal with inflation in the last year. The silver lining of taking out a loan when inflation is strong is that your dollars go further; if inflation continues, you’ll most likely be repaying your debt with less expensive cash.
However, in order to ensure that you can repay your loan properly, you must reinvest your funds in your company. In an ideal world, you’d use your loan to fund costs or projects that help you go forwardand improve your bottom line. This could imply:
How can a company withstand inflation?
What business tactics make sense in an inflationary environment? In this article, we look at how businesses should adjust their business strategies in an inflationary economy.
During an inflationary phase, the cost of products and services rises quickly, reducing the purchasing power of small businesses with suppliers and vendors. Businesses are compelled to raise their pricing with consumers to compensate for higher costs. This generates a vicious cycle of escalating costs, making it difficult to rely on established revenue streams.
At any given time, a few economists are usually warning about the risk of inflation. However, as businesses in the United States struggle to recover from the recent recession, inflationary warnings have become more prominent, raising fears that a time of inflation is on the horizon.
As a small business owner, you must be aware of the effects of inflation on your firm. Even more significantly, you must establish business measures to safeguard your company during an inflationary environment.
- Examine your revenue streams. Before inflation develops, now is the moment to assess the integrity of your revenue streams. Your company model may be jeopardized if your products are discretionary or if you won’t be able to compete on price during an inflationary period. Adjust your revenue forecast to account for inflationary pressures and make any necessary adjustments before prices rise.
- Reduce your expenses. Even if the market enables you to raise your prices to keep up with inflation, you’ll still have to cut costs. Cost reductions will boost your profit margins amid inflation in the best case scenario; in the worst case scenario, decreasing expenses will decrease your losses or perhaps save your company from bankruptcy. Secure long-term contracts with suppliers and plan for possible workforce reductions if the economy enters a lengthy period of inflation.
- Now is the time to borrow. Before interest rates start to rise, now is the time to borrow for capital and operating needs. To mitigate the impact of cyclical loan demands later, start by establishing an operational line of credit at today’s rates. Consider borrowing now for capital that will result in lower costs and/or more predictable revenue sources.
- Customer loyalty initiatives should be re-prioritized. Customer loyalty may be your saving grace during a period of severe inflation. As costs rise, your current customers will be enticed to switch to a lower-cost option. Create value-added incentives for your clients now to urge them to stick with your brand even if prices rise.
How do businesses deal with inflation?
The latter element, in particular, led to one significant adjustment for the year: a 10% reduction in employee healthcare rates in 2022, with no change in benefit levels.
“People are continually whining about the high cost of healthcare. “What our employees told us was that they wanted more money in their pockets,” Darren Burton, the company’s chief people officer, said. “The response has been overwhelming.”
KPMG isn’t the only firm concerned about and responding to growing inflation rates. According to the Consumer Price Index, the annual rate of inflation in the United States reached 6.8% in November 2021, the highest in more than three decades. Businesses areand should bethinking about how they can help, says Stephanie Naznitsky, an executive director with human resource consulting firm Robert Half. With those large hikes hitting employees in all aspects of life, employers areand should bethinking about how they can help. That urgency is amplified in today’s hot job market, where a large number of people are willing to leave their existing jobs in exchange for higher income and better benefits that can help with mounting costs.
“Rising living costs are affecting the entire workforce,” she explains. “This is something that employers should address.”
According to Naznitsky, rising inflation rates, among other problems brought on by the epidemic, have caused workers to re-evaluate their current status. “We’re currently in a candidate-driven market. There are more job opportunities than qualified applicants. Workers are aware that, as the cost of living rises, they can seek out alternative chances to improve their circumstances and balance some of the personal living expenses that have risen in recent months.”
When it comes to dealing with rising inflation rates, many companies are turning to a tried-and-true strategy: pay improvements, such as bonuses and salary hikes. According to a recent XpertHR survey, the typical percentage change for overall compensation budgets from 2021 to 2022 is 3%.
According to the Conference Board, companies are putting away an average of 3.9 percent of total payroll for salary hikes next year, the highest level since 2008. Despite the fact that these raises are bigger than in recent years, clever companies will almost certainly go even higher.
“Forward-thinking organizations who wish to overcome the labor scarcity should consider increasing their expected salary budgets by more than 3%, or look into how benefits other than pay can contribute to a great employee experience,” says Andrew Hellwege, XpertHR’s surveys editor.
According to Julie Stich, vice president of content for the International Foundation of Employee Benefit Plans, a nonpartisan organization with more than 8,200 organizations and 32,000 individuals as members, reexamining employee healthcare costs, as KPMG did, is one way employers often address rising inflation. With the latest inflation figureson top of pandemic concerns that are causing staffing issues and supply chain issues, which are projected to drive up healthcare coststhis is a hot topic this year.
“Employers should discuss whether or not to pass on anticipated healthcare expense hikes to their employees,” she says. “In this tight job market, employers may be hesitant to expand cost-sharing.”
To deal with mounting costs, an increasing number of companies are attempting to get creative with their benefit offerings. Employers may choose to invest in perks such as student debt assistance, daycare subsidies, or fertility benefitsservices that directly benefit an employee’s wallet. According to Stich, these investments frequently pay off for businesses.
“She emphasizes that “the benefits of attracting and maintaining essential individuals can quickly surpass any utilization costs.” “The significance of communication, as always, cannot be overstated. Employers must emphasize the importance of the advantages they provide to their workers.”
Employees can be more in control of moving away from expensive locations, for example, or cutting down on traveling to save on petrol or other transportation expenses, thanks to flexibility and remote work, according to Naznitsky.
“If you can assist in those areas, you may be able to save your employees from a difficult commute and commuting expenditures, or you may be able to provide discounts to help with other expenses,” she says. “Ultimately, the discussion revolves around starting salaries and sign-on bonuses, but we’ve seen employers get inventive in order to assist their employees and keep top talent.”
“Retention is critical, and if businesses don’t keep up with rising costs by altering compensation or bonus structures, they risk losing top people,” says Naznitsky. “Finding talent to add to your team is difficult in today’s industry. You don’t want to be in a scenario where employee turnover is harming morale and you have to replace talent on top of that.”
What is the most effective strategy to deal with inflation?
With prices on the increase, it’s worth revisiting some of Buffett’s finest advice for dealing with what he famously called a “gigantic corporate tapeworm.”
Invest in good businesses with low capital needs
Buffett has long pushed for holding firms that generate significant returns on invested capital. During inflationary periods, businesses with minimal capital requirements that can sustain their profitability should perform better than those that must invest more money at ever-increasing prices merely to stay afloat.
Inflation, according to Warren Buffett, is like “going up a down escalator.”
Look for companies that can raise prices during periods of higher inflation
Buffett told the Financial Crisis Inquiry Commission in 2010 that “pricing power is the single most critical factor in appraising a business.” “You have the ability to raise prices without losing business to a competition, and your business is quite good.”
During periods of high inflation, a business that can raise its pricing has a significant advantage since it can offset its own rising costs.
Buffett famously argued that in an inflationary society, an unregulated toll bridge would be the best asset to possess since you would already have built the bridge and could raise prices to balance inflation. “If you build the bridge in old dollars, you won’t have to replace it as often,” he explained.
What businesses thrive in a high-inflation environment?
- In the past, tangible assets such as real estate and commodities were seen to be inflation hedges.
- Certain sector stocks, inflation-indexed bonds, and securitized debt are examples of specialty securities that can keep a portfolio’s buying power.
- Direct and indirect investments in inflation-sensitive investments are available in a variety of ways.
How can you safeguard yourself against inflation?
If you use at least one of these investment strategies, you will be able to offset the impact of inflation. If you stick to the first two, you’ll be fine as inflation starts to rise. Follow three, and let your imagination run wild!
Buy Physical Gold and Silver
You may totally protect yourself against inflation by investing your dollars in tangible assets such as gold or silver. The price of these precious metals tends to rise as the value of the dollar decreases.
Furthermore, silver differs from gold in that it is in limited supply and is employed by major corporations all over the world. Silver is still used where gold is hoarded, and its value will only rise as the silver supply decreases over time. Having a mix of each of these precious metals on hand is an excellent method to guard against growing inflation. To avoid being duped, make sure you have the metals on hand and buy them from a reputable merchant.
Invest In Other Currency
If the value of the US dollar falls, the value of other currencies rises (at least relatively). The Euro is 1.5 times the worth of the dollar, according to my calculations, but don’t take my word for it. If you choose to invest in other currencies, make sure you understand what you’re doing because it may be incredibly risky if you don’t.
However, if you play the market correctly, you can still come out on top by diversifying your currency holdings in your investing portfolio. Again, make sure you have physical currency on hand, as market-based “derivatives” of paper currency can be manipulated, putting you at greater danger than if you had it physically.
Invest in Positive Cashflow Producing Real Estate
If you’re going to put your money into real estate outside of your own home, make sure the properties you buy will generate a positive cash flow on a regular basis. If you’re not sure what that implies, make sure that the renter’s monthly rent covers all of the property’s maintenance costs. Also, save some money aside for yourself because this is a form of passive income.
The beauty of owning cash flow real estate is that you not only make money on a monthly basis, but you also have the potential for asset appreciation. You also get to generate phantom income by deducting the depreciation of the property’s structure over time. Whatever you do, avoid investing in a property that will generate a negative cash flow from day one…this property will eat you alive, even if its value rises. I would strongly encourage you to seek expert guidance from your advisers and mentors before investing in real estate.
Start a Business
You begin to construct an asset by beginning a business, which increases or decreases in value as inflation rises or falls. The rate of inflation has no direct impact on the value of your firm, but it does have an impact on the prices you may charge for the goods and services you give to the market.
You may mitigate the effects of inflation by managing your business cash flow each month and using the additional cash flow to invest in real estate and physical precious metals. Working, on the other hand, provides you very little, if any, influence over your earnings.
Find The Highest Interest Bearing Saving’s and Checking Accounts
Even if inflation becomes extremely high, we will all need to keep some cash on hand at all times. Keep your money in the highest-paying savings/checking accounts (here’s a list of the finest Online Savings Accounts) or treasury inflation-protection securities to put yourself in the best possible position (TIPS).
As inflation rises, these vehicles will be safer for your money than others that don’t earn interest or more speculative investments. No matter what the rate of inflation is, having cash on hand is essential. Just make sure you’re getting the best interest rate available, regardless of where you keep your money.
These are the best recommendations I can make to assist you weather any “inflation storm” that we are certain to face. If you have any other recommendations for readers, please leave them in the comments!
What steps should you take to prepare for hyperinflation?
Sure, it took some getting used to at first, but with some careful planning and efficient scheduling, we’ve settled in nicely. Of course, we’re both retired, so it works for us, but it might not for dual-income families or families with multiple activities for their children.
Stock Up On Food and Water
I propose storing non-perishable food for any eventuality, not just hyperinflation, as a prepper. Stock up on non-perishable groceries, bottled water, and meat to help save money in the future. If you’re not sure what to buy, have a look at my suggestions below:
Stock Up on Household Items
During hyperinflation, not only will food prices rise, but so will the prices of ordinary household commodities like dish soap, laundry detergent, and hygiene products. Make a list of the Essential Items Every Family Requires and begin stocking up before prices rise.
Become More Self Sufficient
Food and water may become more difficult to obtain, especially if hyperinflation occurs. When you have mouths to feed, that’s a difficult pill to swallow. Consider employing a section of your property as a food source if possible.
To be self-sufficient, you don’t need a lot of land or to live in the country. To assist offer more food and financial security, you can do modest things like establish a garden, rear meat rabbits, or keep a few natural treatments on hand.
Stock Medicine and First Aid Supplies
You don’t want to overlook Tylenol, cough syrup, allergy medicine, or vitamins. Here are 35 OTC Medications You Should Keep in Your Medicine Cabinet. In addition to over-the-counter drugs, you should have a good first-aid kit on hand.
Bandages and Neosporin are insufficient! For various injuries, you’ll need a range of supplies. Check out my First Aid Kit Checklist if you’re not sure what you’ll need.
Consider a Side Job
You never know when you might lose your job, and losing your employment amid hyperinflation would be disastrous. Even if your employment is somewhat safe, you should consider adding another source of income to ensure that you have enough money flowing in as costs rise.
Having a secondary source of income is always a smart idea, and it could save you from the worst-case scenario. Consider freelance work, babysitting, pet sitting, or becoming a TaskRabbit handyman.
Inflation favours whom?
- Inflation is defined as an increase in the price of goods and services that results in a decrease in the buying power of money.
- Depending on the conditions, inflation might benefit both borrowers and lenders.
- Prices can be directly affected by the money supply; prices may rise as the money supply rises, assuming no change in economic activity.
- Borrowers gain from inflation because they may repay lenders with money that is worth less than it was when they borrowed it.
- When prices rise as a result of inflation, demand for borrowing rises, resulting in higher interest rates, which benefit lenders.
Who is the hardest hit by inflation?
According to a new research released Monday by the Joint Economic Committee Republicans, American consumers are dealing with the highest inflation rate in more than three decades, and the rise in the price of basic products is disproportionately harming low-income people.
Higher inflation, which erodes individual purchasing power, is especially devastating to low- and middle-income Americans, according to the study. According to studies from the Federal Reserve Banks of Cleveland and New York, inflation affects impoverished people’s lifetime spending opportunities more than their wealthier counterparts, owing to rising gasoline prices.
“Inflation affects the quality of life for poor Americans, and rising gas prices raise the cost of living for poor Americans living in rural regions far more than for affluent Americans,” according to the JEC report.