Coping with Inflation: Recognizing the Strengths in Our Current Economy


Whether it’s from customers, neighbors, or the local news anchor, I’ve been hearing a lot of concern that “the sky is falling!” 

Not really…but you get the idea. 

Right now, people are concerned that everything that could go wrong with the economy is going wrong. But the truth is that our economy tends to balance out. When one aspect is less than ideal – let’s say, inflation – another is thriving. For example, during times of high inflation, jobs tend to be strong, resulting in low unemployment.

The trick is to find the parts of the economy that are doing well and figure out how your small business can fit into that trend.

Typical Advice

During historical downturns, typical advice for small businesses during times of inflation has been to eliminate waste and cut expenses wherever possible, such as:

  • Streamline processes
  • Consider automation
  • Maximize profit margins
  • Tap into tools that improve productivity
  • Take care of your employees to ensure retention
  • Reduce costs by exploring alternatives
  • Manage inventory accordingly
  • Ponder raising prices (a little)

While finding efficiencies is always good practice, the pandemic economy had already forced most companies to become “lean and mean” over the last few years. If your business falls into that category, it may be time to look for more creative answers.

Opportunities

The only real constant when it comes to the economy is that there are always challenges. When one challenging set of circumstances improves, things just shift to a new challenging situation. 

The thing to remember is that there will always be businesses that benefit from inflation. It’s not all gloom and doom. In fact, there are often positives in the economy that will be overlooked or ignored when inflation is high because some people just can’t see past that one factor.

Entrepreneurship is about seeing opportunities and recognizing how to respond to market changes. A good place to start is the list of typical advice above, but if you are ready for more creative solutions, consider the following steps:

  1. Revisit projections regularly. Be open minded about making adjustments as needed.
  2. Be clear about goals at every level. When you are making changes within your operations, it’s more important than ever to get buy-in from every team member at every level. Don’t be afraid to share your vision for how and why things need to change. Employees feel vulnerable if they don’t have a plan and may start looking for a new company that feels more stable. Show them you are a reliable, safe place to weather the inflation storm.
  3. Change your own mindset. While interest rates may be on the rise, they are still historically low. I strongly believe in the Fed’s aggressive approach to managing the economy. Just because interest rates are higher than last year or last month doesn’t mean it is a bad time to borrow.
  4. Consider your “why” regarding loans. Analyze the purpose and the ROI for any expenditures. Will upgrading or adding equipment take advantage of a new opportunity? Then invest. A good example is when restaurants invested in outdoor spaces during Covid. It may have felt like a risk when income was down, but that investment likely made it possible for the business to ride out that economic challenge.
  5. Retain flexibility in your pending contracts. When everyone was home during Covid, there was a strong trend toward home improvements and backyard beautification. Some contractors were booking out a year or more. That’s great for stability, but not great if raw material costs skyrocket. Be sure to include an expiration date on estimates and a clause regarding final pricing.
  6. Be prepared for new customers. Your own customer base may explore other options, but so will that of your competitors. Be prepared to welcome new niches or market segments that were never part of your previous base.
  7. Rely on your relationships with your trusted business advisors and partners. Your business banker, accountant, lawyer, insurance agent, and wealth manager can all offer expertise based on experience. If you build those relationships during good times, learn to rely on those relationships during bad times.

There is a lot of strength in our current economy. I am still optimistic. And I’m encouraged by the fact that throughout history, we have always emerged from challenging circumstances stronger and smarter.

If you would like to discuss how inflation might impact your business, please reach out to me or contact your business banker or visit us online.

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