The best-laid plans for many businesses have been rudely thrust aside for the last couple of years, with the COVID-19 pandemic causing a significant upheaval to business as usual. While there seems to be light at the end of the tunnel, with the number of new cases finally starting to subside, the reality of inflation means many businesses cannot yet relax “on the other side.”
What Is Inflation?
You are probably aware that inflation occurs when the cost of goods and services rises. Forbes’ definition cuts to the heart of the matter: “a rise in prices and a decline in the currency’s purchasing power over time.”
This affects everyone, as the dollar does not purchase as much as it used to, and it can be catastrophic for small and medium-size businesses. Consumers having reduced purchasing power results in businesses selling less and potentially seeing lower profits.
The Effect on Businesses
The erosion of purchasing power isn’t the only effect inflation can have on businesses. There are two other effects every business owner should expect: shortages of finished products in the market and an increased cost of borrowing.
You may already be feeling the effect of a shortage of supplies, which may prevent the completion of production goods. And if you shop around for a small loan to insulate your business during these challenging times, you may be surprised at the higher cost and lower availability of funds.
Managing Post-Pandemic Inflation
You can take steps to limit the effects inflation has on your business. Here are five of them:
- Evaluate Product or Revenue Mix—Focus on cutting costs and maintaining profitability.
- Strengthen Product Pricing—Consider price increases to stay in alignment with rising costs.
- Evaluate Supply Chain Risks—Make sure you’re not overdependent on a single supplier, consider stockpiling critical supplies with a low holding cost, and put an expedited supply strategy in place.
- Understand Your Inventory—Keep your inventory levels in line with market demand.
- Keep Your Cash—Know the amount of money your business needs to get through potential scenarios of inflation and don’t let your customers use your business as a bank, something that can lead to uncollectible receivables.
Inflation is here, and the prognosticators who said it would be short-lived have already been proven wrong. How long it will remain is anyone’s guess. No matter what industry you are in, you need a solid financial and operational strategy to evaluate your risks during this time and implement measures to help minimize them.
If you have any questions or concerns about the ability of your business to weather inflation, give us a call at 800-230-9822. We can provide insight into how many of our clients are handling post-pandemic economic ripples to their companies.