It’s impossible to turn on the television or visit the grocery store without hearing about inflation in 2022. The inflation rate in the United States is 7.75%, which tells us that the high consumer prices we are seeing today will be doubled in less than 10 years.
How does inflation impact small businesses?
Small business owners are still recovering from the financial impact of the pandemic, and they are now forced to dreadfully examine financial records to see how the current economic situation is affecting their revenues, expenses, and decision-making strategies. While the Federal Reserve continues to raise interest rates to fight inflation, here’s how it’s impacting those on the front lines.
Revenues
Between the coronavirus, the supply chain disruptions in 2021, and now inflationary rates at a 40-year high, decreasing revenues are a topic of discussion between entrepreneurs and their bookkeepers. The constant news about rising inflation and an unpredictable financial future has consumers concerned about increased costs at the gas pump and grocery stores. While the world shifts to a conservative spending approach, small business owners are seeing the result in declining sales reports.
Expenses
Increasing operating expenses are putting a strain on the bottom lines of all businesses. The cost of inventory and supplies have increased, shipping costs are up 28%, and employees are demanding higher wages. Some small businesses have been forced to close their doors, while others are experimenting with passing the increased input costs on to their customers.
3 best practices to survive high inflationary rates
Very few entrepreneurs are willing to give up on their business dreams, so the alternative is to fight inflation every chance they get. If you’re a small business owner and you’re looking for some tips on dealing with inflation beyond those provided by your small business accounting services, check out the following best practices.
Maximize cost-saving opportunities
There are many ways business owners can save money and reduce operating expenses, including:
- Keep less inventory on hand to decrease shipping and storage costs.
- Negotiate reduced rates with your vendors and independent contractors, some suppliers will consider reduced contract prices for extended contract terms.
- Use outsourced bookkeeping services to reduce the expense of an internal accounting team or consulting a CPA.
- Consider the possibility of becoming a fully remote operation to eliminate leasing or rental costs.
Increase prices
Many entrepreneurs fear that if they raise the prices of their products or services, they will disappoint their customers. While no shopper wants to pay more for their favorite things, it is simply unavoidable at times. If you feel that increased prices are the next step in your revised business plan, consider following the following guidelines:
- Add value to your products or services by adding on services like free consultations, newsletters, gift-wrapping, bundle pricing, or discounted delivery.
- Choose the right time to pass along increased costs by staggering price increases across your product line or service offerings.
- As an alternative to higher prices, consider reducing portion sizes or included project hours.
Secure capital
Interest rates are on the rise, but that does not mean a small business loan can’t give your company the financial security you’re looking for. Consider working with a lender to learn about refinancing opportunities or taking out a short-term loan or line of credit. Business financing can increase working capital, cover payroll, or allow you to save money by making bulk purchases.
Key Takeaways: Fighting inflation
- Inflationary rates are at a 40-year high.
- Small business owners feel the effects of inflation in decreased revenues and increased expenses.
- Combat the negative impact of inflation by raising prices, reducing costs, or taking out a business loan.
Connecting with a small business accounting expert, like Edge Capital, is the best way to examine your operations, identify cost-saving opportunities, and create a new financial strategy to move forward.