When a currency’s purchasing power declines, the average cost of goods and services rise, and the economy in question enters a period of inflation. This affects not only individual consumers and families but businesses as well.
COVID-19 has rocked the global economy like nothing we’ve seen or experienced for a century. And the government’s response has been to create massive quantities of liquidity. This means that a period of inflation could very well be on the horizon. If a business is to effectively circumvent this difficult economic period, it should be preparing for the challenges that lay ahead.
Here are four things a business can do to prepare for the next inflationary period:
Preparing for Inflation
1. Since the overall cost of everyday goods will rise, businesses will be forced to pay more for the vendor services thus if you can lock in current prices via longer-term contracts you will benefit.
2. Hedging supply costs through long-term futures can help reduce price fluctuations.
3. Try to pass the rising inflationary costs onto your consumers, if that isn’t possible you will have to cut costs.
4. Since interest rates spike during the inflationary periods, try to lock in current low-interest rates for lines of credit.
Get Cashflow Flowing
No matter what lengths a business goes to in order to prepare for inflation, it will still face a whole host of unexpected hurdles during this incredibly uncertain time period. To aid in its bid to stay afloat when inflation hits, a business must have a strong cash reserve at hand.
Liquidity is king during tough economic times. But often even solvent businesses will have difficulty raising it when the time comes. So the time to prepare lines of credit and other liquidity measures is before you actually need them (and if you can lock in low-interest rates that is a major bonus).
Cultivate a business cash reserve (commonly referred to as either a rainy day fund or an emergency fund).
Compare Service Prices
As previously mentioned, the overall cost of everyday goods and services will rise during an inflationary period, which means that vendors will no doubt raise their prices. When this happens, everyone will be shopping around for better deals. Most businesses spend a large portion of their fixed costs on utilities such as electricity, gas, and water. But with the increasing competition among utilities and the ability to shop for them you can often switch suppliers relatively easily.
To cut costs and find cheaper service alternatives, you can make use of dedicated comparison websites such as Utility Bidder allowing you to compare water suppliers for business utility providers in one fell swoop. This will allow you to explore your options in a quick and efficient fashion, which in turn will provide you with the time and space you need to handle your other inflationary demands.
Focus on Productivity
Salary demands will rise during inflationary periods. To ensure that these increased payment demands don’t end up crippling your business, you need to make sure that you get the most out of your employees on a daily basis. This means that you must double down on wasted time and focus on workforce productivity. If you’re going to pay them the big bucks, you need to get something in return from your staff members! Here are 8 Ways to Increase Productivity in the Workplace.
Prepare for Anarchy
When inflation hits and the prices rise, society can descend into anarchy. With the riots exploding throughout the country we can see evidence of increasing anarchy and the results they bring. Imagine being stuck in a neighborhood that is abandoned by the police as Portland was. Imagine having your inventory burned as in Minneapolis. Supply lines can be cut, distribution channels disrupted… it is essential that businesses have disaster plans in place to deal with such issues. Do you need enhanced security? Back-up generators? Remote distribution centers? Increased insurance coverage? Planning can’t account for all possibilities but some planning for contingencies is infinitely better than none.
You might also like:
- Why Inflation Matters to Small Businesses
- What is the Phillips Curve?
- Could a Raise in Minimum Wage Trigger Inflation?
- Are Businesses Quietly Preparing for a Financial Apocalypse?
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