I wrote a post earlier this summer about the risks of inflation in our economy and how unprepared today’s entrepreneurs are to meet the challenges that a period of high inflation can create for small business owners. Here is a summary of my recommendations:
So what can a small business do these days to try and weather this storm?
– Keep overhead low.
– Build cash reserves to buffer short term price increases that precede higher prices on your part.
– Watch your margins carefully. Worry about growing profits, not sales.
– Don’t lock into long-term contracts that have narrow margins with large customers.
– When inflation heats up even a little, be aggressive with frequent small price increases rather than waiting and trying to catch up at some point with one big jump.
– Pay down variable interest loans ASAP. As long as there is inflation, interest rates will keep going up.
A recent survey from the NFIB raises additional concerns that inflation may be heating up.
They found that about one third of small business owners plan to raise prices, mostly from small businesses in manufacturing and construction. But, these are real goods that consumers will feel in their pocketbooks. Although energy prices have eased, wage pressure is still strong due to shortages of trained, qualified, experienced workers.
Unfortunately, one of the only hopes for an easing of inflation is a recession. Some of us remember this old dance. The economy gets strong, but then it overheats causing inflation. Inflation dampens the economy, leading to a recession. Then the cycle repeats. The Fed is trying to keep control so we do not get into this old business cycle again. But, this time their interest rate policy may not be enough. Let’s hope the ugly beast of inflation can get controlled before it takes us into and economic tailspin. Stay tuned….