Are you worried about inflation? You are far from alone. First, let’s talk about inflation and the stats you need to know. Then, we’ll talk about how business owners can manage inflation in a way that makes sense in their business.
According to Investopedia, inflation is the decline of purchasing power of a given currency over time. The goal is to maintain an inflation rate of about 2% a year. The current inflation rate clocks in at 8.5%, the highest since 1980, per the US Bureau of Labor Statistics. As consumers, we’re seeing higher food and energy prices. As business owners, we’re feeling this in our costs of goods, rent, employee wages, and more.
By educating yourself on what inflation means for your business and considering the five strategies below, you’ll feel confident that you’re doing everything you can to weather this inflation storm with a level head. Here are five things that you can do to handle inflation right now.
5 Inflation Strategies for Businesses Owners
1) Lock in Loans Now - If your business is expanding, such as purchasing real estate or making an investment, consider locking in your loan now. This is something to consider even if you’re not quite ready to invest. Loan rates are favorable now but will start inching up to combat inflation. Set up a time to speak with your lender about your loan terms and options to make the best decision for your business.
2) Lock in Vendors - Now is the time to lock in pricing or favorable terms with your vendors. Take some time to understand the terms on your contracts and your vendor contracts. Locking in favorable terms and pricing now may lead to helpful savings throughout the next year or more.
3) Invest - Just because things are tight doesn't mean that you shouldn’t invest in your business, such as marketing, financial consulting, software, and more. During inflation, those who invest tend to come out of the period stronger than competitors. Why? Because while your competitors are quiet, you can take advantage of this to stand out and grow your business.
4) Strategic Price Increases - While it may seem like the best price increase is to match inflation, we need to step back and think strategically. What’s the minimum you have to raise your price year over year to maintain your business and pay yourself?
Carefully consider the value you bring to your clients and what’s your worth. Matching inflation might be the right choice, or you may need to increase more or less. Depending on your industry, you may have to eat the additional costs of inflation so that you don’t lose out on customers.
5) Profitability Analysis - Many business owners are stressed and worried about inflation. Now isn’t the time to bury your head in the sand and hope it goes away because it won’t. The best way to combat inflation is by educating yourself on what your business needs are right now. By performing a profitability analysis, you can see exactly how your business is functioning and what key adjustments you need to make during a period of inflation.
Prep Your Business for Inflation
By spending time preparing your business to weather this period of inflation, you’re setting yourself up for business success. There is no magic framework for handling inflation because so many factors are involved. However, hopefully, at least one of the above strategies can apply to your business and help you navigate inflation with confidence. Lighthouse Advisory is supporting clients through this period of inflation, taking the stress and worry off their plates. If you’re interested in learning more, please set up your complimentary consultation here.
