Just like any business, an owner should be attentive and responsive to changes in inflation.
When inflation is high, businesses have to spend more on production and profitability falls. This will force them to increase prices in goods and services. In this case, it will be better for a business to increase prices gradually, instead of suddenly, as this will only draw out negative responses from consumers.
In terms of a business’s workforce, inflation affects consumers in a way that raises their cost of living because of the expensive economy. If businesses aren’t able to manage the employees’ wages, there will be a higher turnover for staff as they look for jobs with better pay so they can afford their cost of living.
Inflation isn’t good or bad. For some businesses, inflation drives them to raise prices, making them lose customers. For others, it may be beneficial when it encourages more activity in their industry that won’t happen if prices were lower.
What is Inflation?
Simply put, inflation is the general increase in the price of goods and services within an economy. This is measured by a rising and falling percentage annually, which differs in every country.
Inflation can be both beneficial and non-beneficial to economies. When inflation becomes too high, an economy may suffer. However, if it is controlled and within a reasonable level, it will improve an economy.
How to Prepare a Business for Inflation?
Because inflation can go both ways for businesses, it is best to monitor inflation and prepare the business for it.
Adjust the pricing wisely.
Raising the price of a business’s goods or services at a time when the inflation rate is high may be damaging, but if done wisely, this can also help your business. When raising prices, business owners have to ensure that they stay within the range of their competitors’ prices so they won’t turn off and lose consumers.
If you are able to pay existing credit card bills, loans, and high-interest debts, it is better to do so to prepare for inflation. Reducing the amount of money going out of the business can help free up your finances, which can be used to deal with an expensive economy later.
Optimize business processes to improve productivity.
Is there a way to improve business operations and increase employee productivity? There is existing software that was built to do these. Productivity can go a long way to prepare the business for inflation because when you get more focus from employees on tasks that lead to financial gain, the business’s financial situation will improve.
Make use of technology to reduce costs.
Are there tasks that can be done using technology? Find ways to allow automation to come in and make improvements to your business. Utilizing this kind of technology will also improve everyone’s productivity and free up more time.
While the cost of paying your suppliers is directly related to inflation, it is still wise to evaluate them regularly. Always look out for your suppliers’ competitors and what they’re offering, and keep looking around for better deals. While it’s hard to change suppliers because of your relationship with them, there’s also a high chance that you’ll save money in this area if evaluation and negotiation are done regularly with your existing suppliers.
Inflation can be both beneficial and non-beneficial to every economy, as it affects the costs of operation and the profit for businesses. The key, however, is to prepare the business for when the inflation happens.
If you want to learn more about the discussion of the inflation rate and your business, you can get in touch with Annette & Co. for FREE business advice. Better yet, you can tune in to my Podcast – Uncover Wealth Radio – where I talk about the latest updates on UK Businesses and other topics every workday at 11 in the morning. You can also join my exclusive Facebook group that talks about a lot of business matters and UK businesses.
For more information about this matter, be sure to check out Episode 161 of Uncover Wealth Radio. If you’ve missed the LIVE broadcast, you can always revisit the episode here on our website, Annette & Co.