- Elon Musk, Investor & Entrepreneur
It’s a hot topic that has been on the news for quite some time now: Inflation rates are rising and it’s causing a bit of concern among consumers and business owners.
For those who are unaware (or living under a rock), inflation means that prices are going up. It also means that currencies around the world appear to be losing value. Of course, this isn’t the most interesting of topics but for the sake of your business, we’ve written this article in a way that makes it sound more ‘down to earth’ rather than alien gibberish.
We’ve seen all kinds of global recessions and economic crises in recent decades. The real question is: will your business be prepared?
What is inflation?
Inflation is having reduced purchasing power when it’s reflected with the increased prices of products and services.
Okay, remember when things cost less back in the day compared to now?
For example, a lollipop that would have cost you ten cents back in the 1960s is now one dollar, which is basically a way of saying $1 used to buy 10 lollipops and now it only buys you one. Therefore, the dollar has lost value.
This is a basic explanation of how inflation has worked over the years. It can go unchecked and cause absolute destruction of the economy, so it’s important to not let it get out of hand.
If inflation happens and the local currency devalues, you may notice an uptick in cryptocurrency (Note: this is not financial advice. Your risk in investing into the crypto or stock market may vary. The direction of the market is well out of your control so do your research).
What is inflation in economics?
In economics, you have supply and demand. Inflation will usually occur if the demand for products or services becomes greater than what’s being currently offered (supply). This will usually happen when unemployment rates are low, and workers are operating at higher salaries.
Inflation can also occur due to stand-alone situations. If more wealth is suddenly created, inflation will more than likely happen (this is often controlled by the central banks raising interest rates when it’s deemed necessary).
Lastly, there is moderate inflation that occurs when the economy grows. However, it’s hyperinflation that can cause a disaster and bring the economy to its knees.
Deflation is also harmful to the economy as it brings constricted production and high unemployment…but that’s another story.
How to roll with the punches
Rising inflation can cause a chain reaction in business. You increase the prices of your products and services because your suppliers and vendors increase the prices of the things you invest in to keep your business afloat.
When this happens, it’s important to let your existing clients and customers know about any changes. If you are planning on increasing prices at some point, inform your customer base sooner rather than later. You should expect a similar courtesy message from your suppliers and vendors.
At some point, you’ll need to make an assessment of things. By this we mean determining if the expenses you pay to keep your business operational are worth keeping around (you may end up having to cut certain expenses because you can no longer afford them).
This could mean cutting ties with one vendor and settling with a cheaper alternative. But beware, the risks for this may include a reduction in quality of a service or product you are using to aid your business.
If you’re new to the business world, understand that inflation must happen occasionally! Remember, change is the only constant.
It doesn’t matter which politician is in power in whatever country. The economy has a way of being out of everyone’s control, especially when you throw in a global pandemic.
As inflation takes its tolls, there may also be a change in terms of what your customer or client base requires. At this point in time, it may be a smart business move to make a pivot so that you can stay on top of the needs and demands of the market.
Lastly, when inflation starts to ramp up (no pun intended), don’t jump the gun and start laying employees off. These decisions only need to happen when the financial situation becomes a dire one. Don’t for a second think that letting staff go is an easy way out to avoid losing money. You still need a workforce to deliver your services!
If it is the only way to save your business (and sometimes it just is), making this hard decision is all part of the territory. It’s something that you don’t want to do, but you must because of circumstances beyond your control.
Talk to an expert
If you have concerns about the rising inflation and how it may affect your business, reach out to a Lisnic Expert for advice.
It’s not easy being a business owner when the economy faces uncertainty, especially when inflation is on the minds of everyone.
Lisnic is here to assist you whenever you need business advice! Talk to a Lisnic Expert today and they’ll discuss your next steps for whatever the economy throws at you.
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Thought leaders & celebrities share their tactics for success on the Lisnic podcast by Lisa Teh & Nick Bell