It’s important for entrepreneurs to understand how inflation impacts their businesses, so they can begin preparing for it accordingly. In this article, we explore how the impending inflation will impact businesses in the coming months and discuss ways to factor it into your business strategy to protect your venture from getting hit hard by rising costs.
How Inflation is Impacting Businesses Worldwide
Inflation is a general increase in the prices of goods and services. It’s currently at its highest in over 40 years and is showing no signs of slowing down in the coming months.
Since the consumer’s purchasing power stays constant, inflation also means that their income does not rise at the same rate as the increase in prices. In other words, they can buy fewer goods with a given amount of money. This results in lower profits for businesses producing products and services sold to consumers who must pay higher prices for them.
As the economic recovery gains traction alongside the uncertainty of a global pandemic, high inflation is also causing reduced purchasing power, increased operating costs, supply shortages, and higher wages as a result of labor shortages.
How to Factor Inflation into Your Business Strategy
As business owners prepare for rising inflation in this volatile economic environment, they’ll need to make decisions that not only reduce expenses but also allow them to create scalable growth.
If you want to know how to prepare for inflation, there are several things you can do:
1. Set Up an Emergency Fund
An emergency fund means you’ll have money to tap into in case of an unexpected expense. This could be anything from a broken-down car or appliance to the loss of a client or employee.
2. Plan Out a Potential Budget for Your Company
If there’s a major recession, will your current level of spending be enough? Will it need to go up or down? How will it affect how much money comes in from selling products or services? It may take some careful consideration to figure out what would work best for each unique situation but having this information ahead of time could help save panic later on.
3. Consider What Types of Customers You Have
If your target consumers are more likely to be affected by economic changes than others, it might be a good idea to start targeting different audiences who are less likely to be affected by such things. For example, if there’s a recession, people may not have as much money to spend on luxury items like expensive jewelry or designer clothes. This could greatly impact your business if you operate within these industries.
4. Consider Your Cashflow and Debt Situation
You need to know how much money is coming in and going out, and what your margins are so that you can make informed choices in regard to tackling the effects of inflation.
Inflation can cause cash flow problems if debt payments eat up more of what’s left over after covering operational costs and paying down other debts—a particularly devastating problem when interest rates rise rapidly (as they did recently).
How to Factor Inflation into Your Borrowing Decisions
When it comes to business funding, inflation can actually work in your favor. The key is to leverage the value of your dollar today, while interest rates remain low and inflationary factors are present.
In fact, securing a business loan with a fixed payment is one of the most effective methods to use inflation to your advantage. This is because when you take out a loan with a fixed payment in today’s money, your loan payments become more affordable over time.
Beneficial options include refinancing existing loans at lower rates (which can also boost profits) or taking advantage of flexible and low-cost capital from alternative lenders, like Zinch.
Securing a business loan can also help you to buy more productive assets and reduce your reliance on cash flow. Additionally, this finance can help with expansion, which may be beneficial if demand for your product increases in the future as a result of rising inflation.
Create an Inflation Safety Net with a Business Loan from Zinch
Inflation is a difficult thing to predict and even harder to plan for, but it’s important that you do so. Preparing for inflation now can help you avoid detrimental effects on your business and keep it running smoothly.
If you’re looking to expand your business, a business loan can help you prepare for inflation, while mitigating its impacts.
Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
