Inflation Affects More Than Just Small Businesses’ Bottom Lines - Forbes

James Webster, Executive Chairman, ROK Financial. getty Inflation is on everybody’s mind, and rising costs affect everything from a cart of groceries to energy and transportation costs. But how is inflation affecting small businesses, and how are higher costs impacting the way organizations behave? When thinking about small-business inflation, many people tend to look only at the bottom line. Understanding the big picture, of course, is critically important to every owner and manager of a small business. It’s important to fully understand how higher costs affect your business and to strategize ways you can protect your business from inflation. When inflation rises, every aspect of a business becomes more expensive. For example, higher costs of services can affect the amount of cash you have on hand. Cost increases might force you to forgo any large expenditures while cutting everywhere you can. Inflation might make you think twice about expanding. If inflation is out of control, it can greatly affect your ability to plan for the future. Not knowing, for instance, where prices will likely be six months from now can affect your ability to budget. It also can increase concern among your customers, and they might curtail their planned spending, which can hurt you in the form of lost business. The question is not “how does inflation affect small businesses” so much as what part of a business is not affected. There are probably a few exceptions, but they are difficult to come by because anything that costs money has been influenced in some way by rising costs. The current inflationary trends are making it more expensive for small businesses to offer their goods and services at competitive prices. That leaves managers and owners with a choice: Eat the extra costs, or increase prices. While eating the additional expenses is never a fun decision, raising prices in some industries may not be an option. When inflation is out of control, it affects just about every area of a business. Here are a few examples: In addition to direct costs, inflation can affect a business’s approach to conducting daily, annual and programmatic operations: Inflation also affects internal decisions: Another area affected by inflation is personnel decisions: As these lists indicate, inflation impacts every aspect of a business. The debate is whether a business can adapt to absorb higher costs or pass them on to consumers. For the past three decades, inflation was minimal based on government assessments of the rates. Some industries have experienced consistent inflation in costs, but most only experienced negligible inflation or not so much that price increases seemed forced or unnatural. This reality proved a counterintuitive principle: Not all inflation is bad. A natural progression of pricing and expenses lets you increase your revenue and makes it financially beneficial to expand whenever you can. When prices for everything rise gradually, you can increase prices for your products or services without raising red flags with your customers. The key to staying in business during inflation, weathering the storm and even thriving comes down to three things: Businesses that focus on and achieve those three points will be able to weather the storm, at least for the short term. If the inflationary trend continues unchecked, all businesses will eventually have to make tough decisions as consumers tighten their economic belts to ensure they can meet basic needs. While everyone loves an easy answer, with inflation, there is none. Governments and politicians are trying to get it under control. Economists and business leaders are offering advice on how to rein it in. That means the best strategy for addressing inflation is to adhere to the three pieces of advice above as closely as possible. Eventually, pricing pressure will plateau, but until that happens, no one knows what is next or when inflation will diminish. With inflation affecting small businesses, the only way to get costs under control is to cut sensibly where you can and expand your business when feasible. One way of doing that is to employ marketing strategies to help grow your business in ways that minimize startup costs for new clients. By understanding how inflation makes it more expensive for you to do business, you can ensure that your organization can at least control the impact of inflation, if not eliminate it. Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify? source https://4awesome.streamstorecloud.com/inflation-affects-more-than-just-small-businesses-bottom-lines-forbes/?feed_id=38261&_unique_id=64d826b2b42af