Despite recent fluctuations, inflation remains high and continues to cause financial stress for consumers and businesses alike. The government has implemented strategies to bring the rate down, but it will likely take time for those measures to have an effect.
And, of course, there’s no guarantee that inflation will stay low if and when it comes down. Consequently, it’s an economic force that every company should understand and be prepared to counter.
Tech businesses that adopt a “wait and wish” approach to high inflation typically don’t fare as well as those that take steps to improve their position. However, rash action isn’t what your organization needs. Companies must base their response on tactics proven to be helpful.
By now, we’re all used to hearing the term “inflation.” Companies and consumers alike are also aware of its ramifications—in particular, higher costs on just about everything. For businesses, that means supplies and also expenses for services and intangible assets like small business insurance, from well-known companies such as biberk.com.
Still, inflation remains a bit of a mystery to most people. What causes it? And why can’t we control it more precisely?
Inflation measures how much the cost of goods and services increases over time. Experts calculate it based on the price of specific goods and services as captured in the Consumer Price Index, Producer Price Index, and others. Economists speak about inflation as a percentage, as in, “The current inflation rate is 6 percent.”
The math isn’t complex. What’s challenging is knowing exactly how to control inflation. Governments and their economists understand those forces to a degree. Nevertheless, it’s a difficult beast to tame! Actions that worked previously may have less impact today. Or they may create an even more pronounced effect this time and cause an overcorrection.
Then, there are the repercussions of deflation. Rapid deflation can cause sharp price decreases that produce unintended consequences like higher unemployment. Ultimately, effectively managing an economy is part math and part intuition. You’ve got to understand market dynamics and consumer mindsets.
Today’s high inflation surely has multiple causes, not the least of which is the economic turmoil caused by the pandemic. But the U.S. Federal Reserve continues to assess the situation and enact measures it believes will bring inflation down to somewhere in the neighborhood of 2%, says QZ.
However, as a tech business owner, it’s not in your best interest to simply hope for the best. And you don’t have to. There are steps you can take to protect your company from the effects of inflation.
This isn’t to say you can avoid the impact altogether. When inflation gets high enough, everyone is affected. But if you can minimize the effect, you certainly should.
What You Can Do To Shield Your Business From Rising Costs
No business is impervious to the effects of inflation. But you can take these six steps to minimize its impact on your company. For example, you can:
- Reassess your supply chains. The pandemic created massive supply chain disruptions. The good news is that developing shorter, simpler supply lines not only insulates your business from future issues, but may also lower your costs and offset inflation to a degree.
- Offer incentives to improve your cash flow. As your expenses rise, you need to be sure you’ve got the funds to cover them. You can do that by focusing on collecting debts owed to your company by vendors, customers, etc., more quickly. Offering incentives for prompt payment can result in faster payments on invoices.
- Review your service contracts and renegotiate if appropriate. You may be paying more than you should for certain services. If so, you can renegotiate contracts or eliminate unnecessary services and save money.
- Automate business processes. Most companies have operations that employees are currently completing manually. In many cases, those activities can be handled faster and more accurately by apps and software solutions. Keep in mind that automating doesn’t mean you have to eliminate jobs. It actually allows you to redirect the efforts of your employees to more critical, challenging, and rewarding tasks. So, it’s good for your company and them.
- Review and update your business insurance coverages. Not surprisingly, inflation can drive up the replacement cost of business equipment, infrastructure, and other assets. If the limit on a policy that covers a particular type of asset isn’t high enough, you can end up with a significant out-of-pocket expense. But all you have to do to avoid that scenario is contact your business insurance provider, review your coverage, and make changes as appropriate.
- Stay informed. The more you know about how economic conditions are changing and expected to change, the more effectively you can respond.
Don’t Wait. Take Steps to Inflation-Proof Your Business Today.
The inflation rate will rise or fall. You have no control over that. But you can control whether or not you’re proactive in minimizing inflation’s impact on your company. If you take action, not only are you likely to soften the blow, but you’ll also be positioned for better performance when the economy comes around.
Last Updated: November 22, 2022