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5 Easy Ways Small Businesses Can Fight Inflation

If you own or operate a small business, you know how inflation can affect your bottom line. You are also aware that the U.S. has recently experienced an inflation rate higher than we have seen in decades.

Author:Camilo Wood
Reviewer:Emmanuella Shea
Aug 12, 2022
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If you own or operate a small business, you know how inflation can affect your bottom line. You are also aware that the U.S. has recently experienced an inflation rate higher than we have seen in decades.
With those facts in mind, you have two options: Sit tight and hope the rate comes down soon, or take action to mitigate high inflation’s impact on your business. The first comes with great uncertainty. The rate may remain elevated, drop and stay down, or drop and rebound.
The second strategy is sure to help your bottom line to some degree. Moreover, it is sure to eliminate the helplessness that can be so discouraging for business owners, managers, and staff. The actions cover many areas, from improving cash flow to enhancing your business insurance coverageto account for higher replacement costs.

How Economists Measure Inflation

As a precursor to taking action to help your business fight inflation, it is helpful to understand how economists calculate the inflation rate.
The rate indicates how the cost of goods and services changes over time. Experts determine it using the price of a specific set of goods and services, as noted in indices like the Producer Price Index and Consumer Price Index. The inflation rate is spoken of as a percentage. For example, economists might say that the current inflation rate is 6 percent.
Defining inflation is simple. Controlling it is another matter entirely. Interest rates are the primary “lever” for affecting inflation, but altering them does not cause an immediate change. Like steering a barge, it takes time for the economy to alter its course. And changes must be made carefully, as rapid deflation comes with consequences of its own.
The U.S. Federal Reserve has taken action to help bring inflation down, with a target of approximately 2%. Will those actions be successful, and how long will it take for the interest rate changes to have an effect? Only time will tell.

Proven Practices for Protecting Your Business From Inflation

No company can completely insulate itself from the effects of high inflation. However, by taking the steps below, you may be able to make rising prices—today or in the future—less painful for your business.
  • Automate business processes.Letting technology handle repetitive tasks currently performed manually saves you money and can increase efficiency and accuracy. In addition, it frees the workers previously performing those tasks to take on higher-value projects.
  • Improve cash flow.If you frequently let bills go beyond their due date, that leniency can hurt you since the money not in your bank account is not working for you. Pursuing outstanding debts more urgently and incentivizing debtors to pay promptly are good practices to implement.
  • Reconfigure supply chains.Maintaining the shortest workable supply chains is wise under any conditions. It is especially important today. Not only can taking that approach save you money, but it also lowers your risk of being affected by supply chain disruptions that have become much more common in recent years.
  • Reassess service contracts.Many businesses pay more for services than they should. In favorable economic conditions, that fact is easy to overlook. In today’s economy, companies must eliminate as many unnecessary expenses as possible. Consider renegotiating contracts where possible and stopping unneeded services entirely.
  • Automate business processes.Letting technology handle repetitive tasks currently performed manually saves you money and can increase efficiency and accuracy. In addition, it frees the workers previously performing those tasks to take on higher-value projects.
  • Update business insurance coverages as needed.Inflation increases the replacement costs of business assets. If you suffer a loss and the policy limits you set previously are no longer high enough, you can be left with a significant out-of-pocket expense. Consider talking with your business insurance company and asking if you need to increase the limits on any policy to compensate for inflation.

Be Proactive To Prevent Inflation-Driven Losses

You do not have to be at the mercy of a high inflation rate. Instead, you can be proactive about protecting your bottom line. Then, as Benjamin Franklin astutely observed, every penny saved is a penny earned.
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Camilo Wood

Camilo Wood

Author
Camilo Wood has over two decades of experience as a writer and journalist, specializing in finance and economics. With a degree in Economics and a background in financial research and analysis, Camilo brings a wealth of knowledge and expertise to his writing. Throughout his career, Camilo has contributed to numerous publications, covering a wide range of topics such as global economic trends, investment strategies, and market analysis. His articles are recognized for their insightful analysis and clear explanations, making complex financial concepts accessible to readers. Camilo's experience includes working in roles related to financial reporting, analysis, and commentary, allowing him to provide readers with accurate and trustworthy information. His dedication to journalistic integrity and commitment to delivering high-quality content make him a trusted voice in the fields of finance and journalism.
Emmanuella Shea

Emmanuella Shea

Reviewer
Emmanuella Shea is a distinguished finance and economics expert with over a decade of experience. She holds a Master's degree in Finance and Economics from Harvard University, specializing in financial analysis, investment management, and economic forecasting. Her authoritative insights and trustworthy advice have made her a highly sought-after advisor in the business world. Outside of her professional life, she enjoys exploring diverse cuisines, reading non-fiction literature, and embarking on invigorating hikes. Her passion for insightful analysis and reliable guidance is matched by her dedication to continuous learning and personal growth.
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