High inflation: What does it mean for your business?

High inflation: What does it mean for your business?

High inflation is hitting businesses and households hard in 2022. Across the world, inflation is running high, thanks to factors like pandemic disruptions, monetary stimulus and supply-chain issues/regulations, wage pressures.

You’ll see the effects of inflation at the supermarket and the fuel pump – and in your business.

Eroding your buying power

Inflation increases prices, which eats away at your buying power. For business owners, that means you’ll encounter higher costs from your suppliers. Materials are more expensive, transport has become far more costly, and basics from office supplies to utilities are all rising in price.

In addition, your staff are probably asking for pay rises. For you and your employees to keep up with inflation, your income needs to increase by at least the same amount as inflation. To achieve that could mean a seriously large wage bill increase for your business.

Rising interest rates

Central banks try to keep inflation at a sustainable level. They react to high inflation by raising their interest rates, which slows the economy and will attempt to put a handbrake on inflation (this is an interesting period as it’s a demand fix to a problem caused by both demand (printing money) and supply). As a business owner, you’ll see this reflected in a higher cost of borrowing, and the same will apply to your home loan.

Inflation does have some side-effects that could be positive for your business. First, it tends to push up the value of big-ticket assets that your business might own, like property or plant. Second, it makes debts seem smaller – your debt amount stays the same but hopefully your income rises.

It’s time to raise your prices and analyse your mix of inputs

With inflation causing you to spend more, your business will also need to raise prices. This is always a sensitive topic to tackle with clients and customers, but at least the way has been paved for you by prices rising across almost every single sector and industry.

If you’re wondering how much you need to increase prices in order to keep up with inflation or maintain your margins, do give us a call. We can run the numbers, test out scenarios and figure out a sweet spot that will work for your business.

Another solution is to look at your product or service and find efficiencies or where there is dead weight. Alternative inputs and or removing certain processes that are luxuries can allow you to increase or at least maintain your margin.

We’d love to help and one of the software’s we use called Fathom can do what if scenarios between price increases and margin decrease/increases and put your problem to paper with easy to read reports.