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 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.
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.
What industries benefit from inflation?
Inflationary times tend to favor five sectors, according to Hartford Funds strategist Sean Markowicz: utilities, real estate investment trusts, energy, consumer staples, and healthcare.
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 joining TaskRabbit as a handyman.
Do financials fare well in times of inflation?
The majority of their cash flows are scheduled to arrive in the future, and when inflation rises, these cash flows may be worth substantially less in today’s money. Financials, on the other hand, have done better since their cash flows are more concentrated in the short term.
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.
How do you protect yourself from hyperinflation?
If rising inflation persists, it will almost certainly lead to higher interest rates, therefore investors should think about how to effectively position their portfolios if this happens. Despite enormous budget deficits and cheap interest rates, the economy spent much of the 2010s without high sustained inflation.
If you expect inflation to continue, it may be a good time to borrow, as long as you can avoid being directly exposed to it. What is the explanation for this? You’re effectively repaying your loan with cheaper dollars in the future if you borrow at a fixed interest rate. It gets even better if you use certain types of debt to invest in assets like real estate that are anticipated to appreciate over time.
Here are some of the best inflation hedges you may use to reduce the impact of inflation.
TIPS
TIPS, or Treasury inflation-protected securities, are a good strategy to preserve your government bond investment if inflation is expected to accelerate. TIPS are U.S. government bonds that are indexed to inflation, which means that if inflation rises (or falls), so will the effective interest rate paid on them.
TIPS bonds are issued in maturities of 5, 10, and 30 years and pay interest every six months. They’re considered one of the safest investments in the world because they’re backed by the US federal government (just like other government debt).
Floating-rate bonds
Bonds typically have a fixed payment for the duration of the bond, making them vulnerable to inflation on the broad side. A floating rate bond, on the other hand, can help to reduce this effect by increasing the dividend in response to increases in interest rates induced by rising inflation.
ETFs or mutual funds, which often possess a diverse range of such bonds, are one way to purchase them. You’ll gain some diversity in addition to inflation protection, which means your portfolio may benefit from lower risk.
What creates such high inflation rates?
Hyperinflation is caused by two main factors: (1) an increase in money supply that is not accompanied by economic development, which raises inflation, and (2) demand-pull inflation, in which demand exceeds supply. Both of these factors are clearly linked since they both overburden the demand side of the supply/demand equation.
What should I buy before the financial crisis?
During a recession, you might be tempted to sell all of your investments, but experts advise against doing so. When the rest of the economy is fragile, there are usually a few sectors that continue to grow and provide investors with consistent returns.
Consider investing in the healthcare, utilities, and consumer goods sectors if you wish to protect yourself in part with equities during a recession. Regardless of the health of the economy, people will continue to spend money on medical care, household items, electricity, and food. As a result, during busts, these stocks tend to fare well (and underperform during booms).