Inflation. It is not an unknown phenomenon and is something that has always been around, but in today’s Covid-induced marketplace, it is now more pronounced and relevant than ever before.
The effects of inflation can be seen and felt all across the nation; they directly impact you as a business owner and as an individual. But the top question on everyone’s mind is, “Can we do anything to ease inflation?” Well, we all know inflation is continuing to rise and we have no definite time of when it will stop, so how can we fight back until everything begins to level out? That my friends, is the question!
We will discuss exactly what inflation is and how it affects the small business economy. We can do some things as small businesses owners to ride out inflation until it comes back down or we begin to accept a “new normal.”
Let’s jump in!
Well, my friends, the name of the game is called inflation. What is inflation you ask? According to Investopedia.com, Inflation is the rate at which the value of money decreases while the prices for goods and services are increasing. Inflation can be broken down into three types; demand-pull inflation, cost-push inflation and built-in inflation.
We won’t dive into the nitty gritty of inflation in this blog but will seek to unravel how it applies to business owners and consumers in the current marketplace.
A few indexes measure inflation. The most important index is The Consumer Price Index (CPI). It takes the averages of certain goods and services measures the changes in prices over time domestically for goods and services and are further broken down into different geographical locations. The other index that measures inflation is the Wholesale Price Index (WPI). This index tracks price fluctuations of goods at the wholesale level. WPI can predict the future selling prices of goods due to inflation.
So now that we know what inflation is and how it is measured, we can start to dig into understanding how it affects consumers and business owners alike.
As a business owner, you may begin to feel the impacts of inflation sooner than the average consumer because you have to decide who will absorb the increase. Some ways that you could be affected are through shortages of supplies. When manufacturers could not keep up because of Covid-19, there were delays, and it caused shortages of everything. Another way you may feel the squeeze of inflation is through the cost of borrowing. Because when inflation hits, often, the interest rate on borrowing money is increased as well.
So by the time a business owner is able to pay off the debt, you will have inevitably paid more than what you may have initially calculated. Something else that may impact you as a business owner, which could arguably be the most important, is the pricing of your products.
As we all know, when the demand for products increases and the supply is low, the price will rise. The only way to stabilize prices is to start locally sourcing your materials and items or begin producing those products in-house.
Because of inflation, you may wonder, how will this impact me as a business owner? Well, the good news is that as the shipping delays and shortages begin to level out, so should the prices for items return to a more normalized level. Another good thing to note is that it will not be permanent. Once production can ramp back, the prices will lower because their supply will be on pace with the demand. Typically when looking at consumer goods with historical data, prices are always lower eventually. Unfortunately, the only things that may continue to trend upward are housing prices and rent, but all hope is not lost.
The good news is that economists and the various policymakers who are the movers and shakers are all aware of the rising inflation and, as a country, should be agile enough to weather any outcome. The main takeaways to help fight inflation and the effects of your business are to watch your margins like a hawk and look to grow your profits and not just your sales alone.
Also, focusing on efficiency and productivity will go a long way. There is no perfect combination to do something, but keep trying to stay ahead of the game,
In the end, we are all in this together, and we will have to work positively to weather the inflation storm. Even if supply and demand do not entirely return to pre-pandemic levels, we should all look for ways to protect profits. The best way to do that is to get connected with a CPA firm that can review all financial aspects of your business to see what areas you can improve upon or cut back. Accolade Accounting can do just that and help your business come out even stronger.
We can help chart a successful course of actionable steps for your business by working together. We are here and are ready to get started.
Until next time friends!
Cheers!
JD Longino, CPA
