According to the predictions from different agencies, the US CPI inflation will range from 1.69 to 4.30% throughout 2022. By 2023, the inflation rate will increase by 2.5 percent, dropping to 2.3% in 2024.
Although the trend of the inflation rate is decreasing and apparently favoring thriving businesses, you’ll most likely face tough times if your business struggled back in 2021. To minimize the damage, these are some general precautionary measures for your consideration.
Retire outstanding debts
Generally, borrowers benefit from inflation. Say you borrowed an amount before inflation, and now inflation has doubled loan requirements and interest rates. Ideally, you should have to pay back the borrowed amount on the interest rates agreed before inflation.
However, most lenders keep their interest rates subject to economic changes. Thus, the amount that the borrower pays back will correspond to the rise in rates. In this way, the borrower pays back the amount he borrows without being at an advantage.
Given this situation, businesses should get rid of any loans and debts as soon as they get to know about a hike in prices. We particularly recommend you rid yourself of high-interest debts because when inflation strikes, these debts could become the root cause of your business’s downfall.
For more information on business loans, refer to the business lending 101 guide prepared by Westpac.
Consider business insurance
Business insurance is not a precautionary measure. It is a necessity for both big and small businesses because it can save your business from severe damages at the most unexpected times.
Say a computer with your clients’ information gets stolen. Or perhaps, your building catches fire. Both of these scenarios are quite unpredictable, and this is where business insurance comes in handy and protects you and your company.
Therefore, business owners should make arrangements for insurance the first thing after launching a business. In addition, if you think a hike is around the corner, you should purchase a business insurance policy as soon as possible.
That’s because the price of most business insurance policies rises with inflation. It’s going to become difficult for you to afford it, especially when the business begins running and has its early costs at bay.
As time progresses, the prices will only increase. Consequently, purchasing a business insurance policy will only be possible for you when the business is well-established (if you don’t purchase it right after launching your business). Therefore, we recommend young businesses pre-allocate a share of their capital to insurance.
Reconsider your pricing and marketing schemes
Another way to prepare your business for inflation is to reconsider your pricing plans. Sit down to calculate the potential increase in prices and determine how you will communicate this with your existing clientele.
If you raise the prices suddenly, you’ll be damaging customer relationships and might lose a significant number of your customers. Therefore, you need to communicate this raise in price slowly and gradually.
For smaller inflation rates, i.e., 2 percent or less, you can create advertisements that break down the cash flow for your customers. It will win their trust as they understand you’re charging them reasonably.
For larger inflation rates, i.e., 2 – 8.5 percent or more, you can divide the increase in your pricing into 3-4 units. Add one unit to the total price and advertise. Repeat until you’re selling at the just price.
Simultaneously, you’ll also need to work on increasing sales volume. Invest wisely in your marketing efforts. And study your competitors’ pricing plans and compare your inflation-combating strategies with theirs to ensure your new rates are not out of the market.
Automate processes
Automation can significantly improve productivity. If you automate tedious everyday tasks, you will not only save money in the long run, but you can also make the best of your employees’ potential. You can have them focus on core responsibilities and more meaningful tasks, which can generate better profits for the business.
For example, imagine you’ve hired someone to manage day-to-day attendance and keep a record of changing shifts. If you automate this task using suitable time management and employee tracking software, you can rid your business of one unnecessary employee expense.
Instead, you can have this employee work in the marketing wing, where they can experiment with their creativity and come up with newer, effective ways of promoting your business.
