5 Simple Steps Small Businesses Can Take to Cope With Inflation

Inflation has been climbing faster than ever, putting financial strain on consumers and businesses alike. The government is implementing measures to curb it, but that correction may take time.

And even if the rate does start to come down, inflation is a force that every business owner should be prepared to address. Companies that sit back and wait for it to subside tend not to fare as well as those that take action. However, business owners must base their actions on understanding what inflation is and why it occurs.

Inflation 101

Companies are familiar with the word “inflation” and its implications—namely, higher costs for everything from supplies and services to critical business assets like small business insurance policies. But its precise definition and causes are more of a mystery to most people.

Technically speaking, inflation is a measure of how much the cost of goods and services increases over time. Economists calculate it based on the price of a set of goods and services as captured in the Producer Price Index, Consumer Price Index, and others. Experts refer to inflation as a percentage, as in, “The current inflation rate is 7 percent.”  

So, the math is easy. What’s more difficult is determining exactly what affects the inflation rate. Economists understand those forces to a degree, but that doesn’t mean anyone knows precisely what should be done to alter the rate at any given time. Complicating the matter is that rapid deflation and the sharp price decreases it causes can produce negative consequences like higher unemployment. So, steering the economy is challenging, to say the least.

Regarding today’s relatively high inflation rate, experts agree that it’s partly due to the pandemic’s repercussions. Fortunately, the U.S. Federal Reserve is acting to bring inflation down to approximately 2%.

We’ll see how effective their actions are in the coming weeks and months. In the meantime, you should be doing all you can to insulate your business from the effects of inflation.

What You Can Do To Shield Your Business From Rising Costs

No business is impervious to the effects of inflation. But you can take steps to minimize its impact on your company. For example, you can:

1. Improve your cash flow. Collecting debts owed to your company by vendors, customers, etc., makes it easier to pay for the goods and services you need. Although inflation is affecting everyone, you may be able to offer incentives that result in faster payments on invoices.
2. Automate your business processes. You probably have employees performing tasks that could be done faster by software solutions and apps. Increasing your level of process automation can save you money. It can also reduce errors and increase accuracy.  
3. Review your supply chains. Where you purchase materials, parts, supplies, etc., can affect the cost of those resources. Particularly now, when supply chains worldwide are struggling, simpler is better and possibly more cost-effective.
4. Assess your service contracts. Are you paying more for services than you should? If so, you can renegotiate contracts or eliminate certain services and save money.
5. Revisit your business insurance coverages. Many business owners don’t consider that inflation can drive up the replacement cost of business assets. If you don’t have adequate insurance, a loss can mean a considerable out-of-pocket expense for your business. You can avoid that by contacting your business insurance company and doing a quick review of your policy limits.  

Take Action to Address High Inflation

You have no control over changes in the inflation rate. But you can control its impact on your business. And taking appropriate action means your company will be perfectly positioned to thrive as the rate comes down.