Inflation Is Coming! Here's What Small Businesses Should Do

US Treasury

I have been concerned about inflation for some time. While day-to-day economic signs have not supported my view, public policy decisions that include massive deficits have caused me to keep worrying even as others claim inflation is “permanently” under control.

While day-to-day signs have not supported my view, public policy decisions that include massive deficits have kept the nagging worry about inflation with me even as others claim inflation is “permanently” under control.

Over the past few weeks the Fed has said it is going to use inflationary policy as an intentional “cure” for our economic woes, affirming my worst fears.

Clearly, Washington does not believe market forces will re-energize our economy. They are sending a clear message to entrepreneurs: “You are irrelevant in economic recovery.” Given that entrepreneurs have led us out of almost ever past recession, this is an alarming shift in policy.

What does this mean for your business over the coming year? Sadly, things are about to get worse. Much worse.

The problem for small businesses is that they are less able to adjust prices as quickly to adjust to inflationary pressures. If you have big suppliers and/or customers, they can tie your hands; Your costs go up, but you are unable to pass along these costs with higher prices.

So what can a small business do with pricing strategies to weather this impending inflationary storm?

The recession has made entrepreneurs leery of doing anything but cut prices to keep their business afloat, but there are other actions you can take.

Be aggressive with frequent small price increases rather than waiting to catch up with one big jump. While this can be tough to implement – particularly if you publicly list your prices – customers are less likely to pay attention to price increases if they are small.

Manage your expenses prudently. Continue to keep overhead low. Build cash reserves to buffer short term price increases. Watch your margins carefully (worry about growing profits, not sales).

Don’t lock into long-term contracts with large customers that have narrow margins. Pay down variable interest loans ASAP, especially now that interest rates are temporarily low.

Dr. Jeff Cornwall is the inaugural recipient of the Jack C. Massey Chair in Entrepreneurship at Belmont University in Nashville, Tennessee.  He also serves as the Director of the centre for Entrepreneurship.  He has published six books and numerous articles on entrepreneurship. This post was originally published on his blog, and it is republished here with permission. 

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