By - September 29, 2021
Categories: General
If you have watched the news at all in the past couple months you’ve probably heard that inflation is increasing. But what is Inflation? And how does inflation affect your business? The news media will spin inflation to mean different things depending on their political affiliation.
Put simply, inflation is the rise of prices across an economy that lowers the purchasing power of a dollar.
The fact remains that we are in a time of growing inflation. But if we want to address how inflation will affect your business, there are three areas to look at.
Increased Material Costs
If you need a good example of how material costs are rising, just head down to your gas station. Fuel prices are a good example of how inflation impacts multiple areas of the economy. Fuel costs are determined by how much the oil rich countries determine they are willing to pump and the prices they set. Scarcity or perceived scarcity will cause the prices to rise.
Once prices increase on gasoline, transportation costs will also increase to match. The prices of raw materials will also rise. Manufacturing costs rise and then your purchasing price also increases. Inflation affects not just you, but your entire industry and all the supporting industry. It’s good to remember that inflation causes a decrease in what a dollar is able to buy. Your prices will rise, and so will your competitors.
Increased Overhead
But inflation won’t stop there. You will also have an increase in your overall overhead costs. Your rent will increase as real estate prices also rise. Your employee costs will also go up. Wages will need to increase or you may lose employees. Beyond that you will face increased training costs, increased benefit costs, and employee equipment costs.
The systems and tools you use to run your business will get more expensive. Vendor fees will expand to help them maintain control over their costs. As you move to cover your overhead, your prices will also need to increase.
Artificially Raised Prices
The worst part of this is that your prices are being artificially inflated. Rather than your work becoming more valuable, your work retains its old value while money’s value decreases. Products may become more expensive and more scarce. If this sounds all doom and gloom, I understand. Inflation sucks.
And if you aren’t prepared for it, it can wreck your business, and your future. It will make running your business and having a positive cash flow exponentially more difficult.
Be Proactive
The good news is that you don’t have to sit back and wait for the effects of inflation to hit your business. You can make sure that you are charging what your products and services are really worth. You can take control of your finances through better budgeting. You can find ways to decrease your expenditures through bulk purchases and increased efficiency.
And you can get your bookkeeping under control to help you paint an accurate picture of your business needs and responsibilities. And good bookkeeping actually saves you money. If you would like to talk in detail about how your business can deal with inflation and continue to thrive even in hard times, I would love to speak with you!
