How inflation will affect small businesses
Increased demand, high energy prices and supply chain issues have all put pressure on the economy - inflation has risen and is expected to get even higher. How will the increase affect you? Start preparing your business and protecting your supply chains.
What is inflation?
Inflation occurs if there is a broad increase in the prices of goods and services, not just of individual items. It means that you can buy less for £1 today than you could yesterday. In other words, inflation reduces the value of the money over time.
Why is inflation rising?
Inflation has risen because when the economy reopened after the pandemic, people spent much more than over lockdown, causing demand for things like food and drink, fuel, clothing, and meals out to soar.
Shortages of items including building materials and computer chips made this worse. The lack of shipping containers and lorry drivers has made it more difficult and more expensive for businesses to get hold of good, leading to increased prices under the demand pressure.
What could this mean for business?
Increasing inflation could have several effects on business:
- Increased costs of materials
- Longer wait times for those materials
- Higher shipping and transport costs
- Increased employee costs
- Much higher utilities costs
When added together these can create an impactful toll on a business’ bottom line.
How should I prepare my business for inflation?
There are options for businesses that are impacted by inflation. It takes time and solid financial planning to understand which actions might have the biggest impact. You could for example:
- Assess pricing - raising prices could reduce the number of customers, but you could also introduce new products with higher margins or cut the price of a popular service or product that that may entice further purchases
- Reduce expenses - streamlining business processes and reviewing all costs along a production line or service offering is an essential way to keep your business lean and overheads low.
- Look after existing customers - loyalty is invaluable. Make sure you are keeping your customers on side, go the extra mile and they will look after you. Finding new customers is a costly and time consuming affair, make sure your customers are coming back.
- Loans - a flexible business loan may strengthen your cash flow or cover increased costs, but make sure you get with sound advice to make sure this is the right option for you to take.
Are you looking to forward plan your business finances for the coming year? If you have any questions please get in touch with Robert Willison who will be able to advise you further.
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