Inflation: How Business Owners Can Still Come Out On Top
We talked recently about the economic forecast for 2022 and how proper budgeting and building an emergency fund can help combat the effects of inflation.
Now, we'll examine inflation a bit more closely and outline other strategies for mitigating its impact.
What Is Inflation?
In its simplest terms, inflation happens when prices rise. You are purchasing the same items you always do, but they're costing you more. This means that—unless your incoming money also rises to meet inflation—your purchasing power is decreased.
People are feeling the effects of inflation this year in big ways. According to Experian, inflation led to an 8.5% rise in consumer expenses in March 2022, compared to the year before—that makes for the highest rise we've seen since the early eighties.
Small Business Owners Are Feeling the Effects
There is also some data that illustrates small business owners have been hit particularly hard by inflation, with an overwhelming majority saying they're paying 20% more for supplies and service.
This can put leaders in a difficult position. If they pass on the price hikes to customers, they risk losing business but if they absorb it as a company, they still make less money.
Is there any good news to be found here? Well, as of this summer, there are some indicators that the worst may be over and prices will not continue to rise. However, that doesn't mean that they aren't uncomfortably high for many people right now. If you're in this boat, there are some tips you can try to ease your discomfort.
How To Deal With Inflation
When prices are high like they are now, your two options are to either bring in more money or cut costs and expenses, with the latter typically more accessible and practical for most people.
Here are some tips on how to trim some of your expenses and ensure you're turning a profit:
Review the steps of proper cash management. Are you invoicing people on time, following up on payments you haven't received, and staying ahead of any cash flow issues that may arise? If not, come up with a plan to get on track.
Audit your current processes to see if there are any opportunities to streamline workflows and save resources, whether that's employee time or a physical resource.
Examine your budget and see where you spend the most money. Is there any way to cut back in any of those areas? It's sometimes worth trying to negotiate on routine expenses. For example, if you've been working with a supplier for a long time, they may be able to offer you special or promotional pricing.
Evaluate your assets and verify you have some liquidity to your portfolio. If you've heard the saying "cash is king," that's the sentiment here—to a certain extent. You don't want your entire asset sheet to be liquid assets, but having a diversified portfolio can help you weather any storms that arise.
Modis Can Help With Budgeting and Cash Management
The stress of inflation is very real, but being proactive with financial planning can help alleviate anxiety and offer stability in these uncertain times.
If you'd like some assistance with budgeting, our cash management and financial planning program can help. Contact the team at Modis Advisors to learn more about our services.