It’s important for its owners to understand the factors that can impact their bottom line. One of these key factors is inflation. The Federal Reserve targets an annual inflation rate of 2%. However, the rate is currently at 8.6%. Inflation is a result of the broader economic trends at play in the market. In this article, we’ll explore how inflation affects businesses and what owners can do to mitigate its impact.
Inflation affects businesses in many ways. Especially when it comes to cash flow and purchasing power. This puts pressure on small businesses and can lead to a decline in profitability. Inflation is a driving factor for businesses no matter the size
While inflation can have negative effects on businesses, it’s important to note that not all businesses are equally affected. Those that can pass on higher costs to consumers through raising prices are less likely to be adversely affected by inflation than those that cannot.
How Inflation Affects Businesses
Here are 10 different ways inflation can impact businesses
1 Supply Chain Disruptions
2. Consumer Price Increases
3. Shortages of materials
4. Increasing Interest Rates
5 Decreased consumer spending
6 Increased inventory
7 Difficult to Invest
8. Higher Wages
9 Older Debt becomes cheaper
10. Increased competition
How does a business prepare for rising inflation
While inflation can have a few benefits, such as stimulating economic growth, it can also lead to price increases for goods and services. It’s important to have a pricing strategy in place that can help you absorb some of the impacts as inflation rises.
One way is to raise your prices in line with the rate of inflation. This will help you maintain your profit margins and prevent your business from being priced out of the market. Another option is to offer discounts or promotions that help offset the increased cost of goods and services.
Article by: Rakesh Parikh
Rakesh is a Managing Director and founding member of Pivot Capital LLC. As a registered certified public accountant, he’s spent the past 20 years in private practice as the founder of One Capital Financial Advisors, Inc. advising clients in accounting and financial services including audits, reviews, compilations, valuations, tax advice and LLCS corporate preparation. His work also includes mergers and acquisition advisor, certified exit planning advisor to small business and family partnerships as well as due diligence in buyer-side target acquisitions.