You don’t need an MBA to know that inflation can have a negative impact on the economy. As prices continue to rise across the nation, Americans are finding it increasingly difficult to buy the goods and services they need.
This is certainly true for the average consumer; however, for small business owners trying to stay afloat after surpassing the challenges of the pandemic, rising inflation threatens their very existence.
This article explains what inflation is, how it impacts small businesses, and what steps you can take to protect yourself from rising prices.
Most people think of inflation as an increase in pricing; however, it’s really a measure of each dollar’s dwindling purchasing power – tracked using the Consumer Price Index (CPI) administered by the U.S. Bureau of Labor Statistics. As more money circulates in the national and global economy, each dollar bill becomes slightly less valuable. As a result, you need more money today to buy the same goods as yesterday.
Some inflation is normal with population growth, as more consumers, businesses, and even lenders enter the economy. Under ideal circumstances, the impact of inflation on business owners and consumers can be managed, with the U.S. Federal Reserve often using 2% annual inflation growth as an indication of a strong economy.
In layman’s terms, the effects of inflation at 2% means a can of soda that cost $1 last year would now cost $1.02 today.
In March 2022, however, U.S. inflation hit 8.54% – the highest it’s been in roughly four decades. Although there are several potential causes behind this spike, some of the biggest contributing factors include:
As a consumer, you likely already understand the negative impact of inflation when managing your home expenses. The same general phenomenon is at play when managing a business, too. Things are more expensive across the board.
In strictly economic terms, the effects of inflation on small business owners include:
Covering these expenses often requires raising your prices, which could reduce overall demand for your goods and services. However, it’s worth noting that the impacts of inflation aren’t always negative. Servicing debt, for example, can become easier. This is because you’re now paying back lenders with cash that is more plentiful but less valuable than when you first borrowed the money.
The U.S. Federal Reserve is tasked with managing inflation by using methods to decrease the supply of money or by increasing interest rates.
While you can’t do anything personally to stop inflation, there are steps you can take to mitigate the negative impacts of inflation on your business. Some of the more common strategies include:
In these uncertain times, prices could continue to rise – especially with war, supply chain issues, and a growing global population.
Our POS solutions, including inventory management, detailed reporting, and customer engagement, can help ease some of the effects of inflation on your small business.
To learn how our POS systems can help, schedule a free consultation with a Clover Business Consultant today.CONTACT SALES
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.