Inflation and Ways to Overcome it's Impacts
Indeed, people don’t need an MBA to determine that inflation has the worst economic impact. That is for the average consumer; however, for small business owners trying to survive after surpassing the wrath of the pandemic, rising inflation threatens their existence.
This article explains what inflation is and how it impacts small businesses. Aside from that, you will also learn some steps to protect yourself from rising prices.
What is Inflation?
According to the balance, inflation refers to a general increase in the prices of goods and services in the economy over time that corresponds with a decrease in the value of money. It corresponds with a loss of purchasing power for a currency utilized within the economy. In addition, inflation can also affect savers because it takes away the value of the interest you can earn on their deposits.
However, some inflation is considered normal with the continuous population growth. Ideally, the impact on business owners and consumers can be managed in the U.S. In addition, the Federal Reserve uses a 2% annual inflation growth to indicate a strong economy. In simple words, the effect of inflation at 2% means a bottle of beer that cost $1 last year would now cost $1.02 today.
Here are some exciting facts for us to understand inflation further.
First, the pandemic disrupted supply chains worldwide and made manufacturing and delivering goods harder.
Second, COVID-related lockdowns and layoffs require injecting stimulus funding to keep the economy afloat.
Third, more people spend money in what was once a very sluggish economy; this is objectively a good thing, but it also means more buyers competing for the same goods and services all at once, which naturally drives up prices as a result.
How does inflation affect businesses?
As a consumer, it is not tricky to understand the negative impact of inflation, especially when you manage your home expenses—the same scenario when you’re working your own business too. Things are more expensive across the board.
The effects include:
Operating expenses are now higher than before
Paying and maintaining employees is more expensive
Supply chains are less reliable but have more competition
Shipping costs also increase for you and your customers
The challenging part is that covering the expenses means raising your price. As an effect, it could reduce the overall demand for your goods and services.
How to overcome inflation?
The U.S. Federal Reserve is tasked with managing inflation by using methods to decrease the supply of money or by increasing interest rates.
Some of the strategies include:
Using innovative marketing to stand out in an increasingly saturated crowd. For example, you can successfully grow your prices to entice more sales or larger orders. You can also use discounts, promotions, and loyalty programs to turn first-timers into repeat customers.
Improving employee retention. It costs money to recruit, hire, and train new workers as old ones leave. If you can’t afford to raise salaries, consider offering other perks such as flextime, telecommuting, or employee bonuses.
Saving a nest egg, if possible. Having a little extra on the side can help you weather rough times later. Alternatively, you can apply for loans or cash advances to cover immediate expenses– or help expand your business
Leveraging automation to eliminate costs and save time. For example, having the software you use to run your business integrated with your point of sale system can help remove the need for manual data entry, allowing you to manage your books, employees, inventory, and time more efficiently.
With war, supply chain, and a growing global population. Prices would continue to rise, mishitting both business owners and consumers.
eatOS POS solution, including detailed reporting, customer engagement, and inventory management, can help ease some of its effects on your small business. And to learn how our POS system can help, schedule a quick meeting and demo with our consultant today.
