How to Prepare Your Business for economic Inflation
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No one knows exactly what the next few months might look like, especially when it comes to the economy and how quickly or slowly it might potentially bounce back. One thing that many experts agree upon however is that there is a very good chance we will be seeing high economic inflation levels as we emerge from the midst of this crisis.
Why the risk of inflation in a post-pandemic climate? Given the responses of governments across the globe to COVID-19, the shutdowns, the various restrictions put into place, what we have seen is a dramatic decline in both supply and demand worldwide. Certainly, not all sectors were affected in the same way, but the ones that have been hit hardest tend to be the places where inflation is most sharply felt. Once the recovery period truly does begin, what many are predicting is an expansive increase in demand and yet with the supply greatly diminished as a result of the lack of production during the quarantine, prices could very well increase at staggering levels. And while yes, both supply and demand will most definitely rise eventually, the rate at which each does will be key to how much inflation we do end up seeing.
As a small business owner during a period of recovery, it is so important to stay on top of how even moderate inflation could impact your bottom line. Especially for those companies who might still be struggling as they are operating under restrictions or limited capacity, taking steps to try and economic inflation-proof your business now is critical. Below are some steps you can take and strategies you can implement that might just help prepare your small company for the inflation that is likely to come.
1. Revisit your pricing scheme
Given what we've all just experienced and are continuing to experience, raising prices can be a difficult decision. Of course, you don't want to price yourself out of the market, but then again many are in recovery mode and need to find that balance between offering fair, competitive pricing and yet still trying to get somewhat ahead if at all possible in this environment. If you opt to raise your prices, make sure you know where the competition stands. If you go too far above their pricing structure you could do yourself more harm than good in the long run and ultimately lose customers.
2. Get a better handle on your debt
In the face of potential inflation, being able to pay down some of your debt is certainly the smart move. Are there any loans or credit cards that you can pay off or even reduce the balance? Check to see if there is any high-interest debt that you might be able to clear off your plate in the coming months. If you can figure out how to cut down on the monthly debt owed, this then frees up cash to help your company should inflation become a major issue shortly.
3. Improve your cash flow
It is now more important than ever to keep track of the amount of money coming in versus that which is going out. If there are ways you can see of improving cash flow, then now is the time to take action. Make certain you get those invoices out; if there are late payers stay on top of them with reminders. Some small businesses might consider looking into a line of credit to help enhance cash flow at the current time. If higher costs due to inflation become an issue for your business, then this definitely might be something you want to check into.
4. What's your productivity like?
As companies start to reopen, whether fully or partially, it is crucial to measure your productivity and try and find ways to optimize it. Obviously during the past couple of months productivity has dropped off for numerous businesses across the country. Now, as we begin to enter this recovery period, it is time to revisit how productive you're being, how on-task employees are, and to what extent are you maximizing your time and energy. While things seem challenging, this actually might be a great time to review all aspects of your operations, from how streamlined your communication system is, to where you might be wasting otherwise valuable resources.
5. Update and automate
If you have the means, now is also a great time to revisit some of your daily tasks and see where technology could potentially come into play to help streamline and speed up how you're getting things done. By automating some of the more basic, everyday tasks, you not only save money in the long run, but you are freeing up your employees to focus on more vital roles and responsibilities, which again goes a long way toward improving your productivity—essential during a period of inflation.
6. Renegotiate with suppliers
Yes, you may be loyal to your suppliers, but during a crisis such as this, everyone needs to be understanding of the fact that small businesses need to take steps to survive. Talk to your current suppliers, explain the situation your business is facing; odds are, they will be willing to work with you in some form or another. If not, it may make sense to shop around and thus find the best deal out there. Negotiation certainly never hurts.
At First Union Lending we are in the business of helping this country's small companies survive, and hopefully moving forward, even thrive. We can get you access to a variety of business loan programs—from lines of credit to merchant cash advances, to funding available through the PPP. You don't have to face this alone. We are invested in every one of our clients and ultimately, in their success. Call today and let's get started together!