As referred by business2community.com, inflation is defined as ‘a general rise in the price of goods and services’. This can lead to an increase in prices or a fall in the purchasing value of money. It also results in changes that favor one group over another.
It is important to track inflation’s forecasted rate each year to help you manage it. You can find many online sources that provide information about the inflation rates for each country. These updates can help you predict what might happen in the next year, or five years from now. While inflation can affect different countries in different ways, having a general outlook will allow you to be ready for any unexpected changes.
Inflation can affect loan rates and salary, as well as your business.
Owners of Micro Small Medium Enterprises (MSMEs) should be aware how inflation can impact their business and find ways to deal with it. You may not have the same influence as large companies to get things done or get new products at lower prices. This is why the inflation rate can affect your business very early. These tips will help MSME owners plan better for the future.
How Inflation Can Affect Your Business
Inflation can have a wide range of effects, from increased prices to slower productivity levels. The most common effect of inflation is higher costs as a result of salary increases. This can have a significant impact on small businesses. Employees may leave your company if their salaries rise, in order to get better wages at other companies or larger ones.
How to Reduce the Inflation Risk in 2022
Prepare documents related to Salary Agreement/More
It is essential to prepare documents regarding salary agreements or increases, especially if your staff members are still under contract. It will make it easier to decide who gets a higher raise than others. This helps employees maintain good relations with their employers as they know what to expect. Before you give them the document, however, be sure to understand their expectations and price range.
Budget Adjustment
It is crucial that you adjust your budget once you have received a salary increase. It is important to know that inflation rates will rise and so will consumer prices and the salaries. This increases the pressure on companies to adjust their finances to meet higher expenses, but not to affect wages or lower profits. Cash flow management can be improved by setting up cash reserves to help with future cash needs. Business owners often need additional cash in case of unexpected economic changes.
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Prepare Your Small Business for Inflation
Find out about the prices of suppliers (both new and old)
It is important to review the terms of your contract if your supplier offers product discounts depending on your contract term. You might consider whether you want to extend your contract based on the new rates from the supplier. Inflation rate rises, so it is best to find new suppliers that have lower prices. This allows your company to save money over the long-term.
Find a New Supplier
Finding reliable suppliers who offer quality products at reasonable prices is one of the best ways you can manage higher inflation rates. As much as possible, negotiate with them to get price reductions that would benefit both of you.
Consider Clients’ Background/ Overview
Think about the background of your clients and how they run their businesses if inflation is a problem. Large corporations or companies that deal with many suppliers and retailers will be the hardest hit by an increase in inflation rates. They spend more than other people. Consider your clients’ perspectives. If you are unsure of where they will be hit by rising prices, give them competitive rates that can help them save money.
Supply Chain Management
When it comes to addressing business challenges such as inflation, supply chain management can be a good strategy. A well-organized supply chain can help you deal with unexpected price changes or work schedule regulations. There would be fewer stock outs, which will result in lower costs and allow you to reduce expenditures without having to affect employee wages.
Preparing for future price hikes
A good supply chain management can help you avoid future price increases. It allows you to keep more inventory, which will allow your stock to last longer and not affect sales. This can increase profits and decrease expenses, as well as encourage staff to work harder in order to meet demand. This improves customer relations as customers won’t complain about stock outs or long waiting periods that can affect their business.
Review and Negotiate your Lease Terms
It is important to review and negotiate your lease terms, especially as the inflation rate rises significantly. This way you can adjust the space required for your products or services according your workforce size. It is not uncommon to move your business location. You need to research the best place for your clients and locate a new one.
How to enter new markets and areas
Last but not the least, consider expanding your business to new markets and areas that are more cost-effective. Inflation will make it harder to manage costs like rent and other expenses. These areas may offer better deals than those near you, which can help attract clients who want to save money even though they have to travel farther away.
Funding Required to Cover Rising Inflation Rate
Recently, the supply chain has been a major topic of concern in the media. The inability to get supplies because of a shortage of workers to load the ships and drive trucks has resulted in higher prices for products. Workers are also demanding higher wages. All of these can adversely affect small business cash flow.
These options are great options if you’re experiencing a supplier price increase. However, they may not be possible for you because of the products your small business sells.
While it is important to plan for inflation, Progressive Business Capital can help you solve cash flow problems for your small business. They work with many lenders and may be able to assist you.
For more information, please feel free to contact us online at (800 508-4532) or by email [email protected].
