The inflation rate in 2019 is predicted to be about the same as 2018 (between 2.3 and 2.5 percent, depending on which agency is doing the calculations). According to Kiplinger, “Factors pushing prices up faster include tariffs and rising labor costs. Pushing inflation down will be the strength of the U.S. dollar, low gasoline prices and an expected deceleration of housing costs. The end result will be a wash, with up and down factors in balance.1

Even a relatively low inflation rate can affect your company’s bottom line by increasing costs for supplies, equipment, etc., and if you aren't ready to deal with that, it can have a damaging impact on your financial situation. That said, inflation is not always a bad thing.

As Adam Uzialko at Business Daily News says, "The first thing to take note of is that inflation isn't good or bad; that's a matter of perspective. For some businesses, inflation could be a bad thing, forcing businesses to raise their prices and contributing to a loss in customers. For others, it could be a benefit, spurring activity in their industry that would otherwise occur elsewhere if prices were lower. Moreover, the level of inflation matters; a little bit might be desirable, while too much could grind consumer spending to a halt and send the economy into a tailspin."2

It's wise to keep an eye on the inflation rate and to be prepared in case you need to make adjustments. Here are some ways to counteract the negative effects of inflation on your business:

1. Adjust your pricing

It's true that raising your prices can be damaging, and it's most likely not the first course of action you'll want to take in the face of inflation, but it does remain an option. If you decide it’s time to raise prices, keep an eye on your competitors' prices and try not to go too far over what they're charging. 

2. Reduce your debt

If you can reduce your debt, preparing for inflation is a good reason to do so. Are there credit card bills or loans that can be paid down? Do you have high-interest debt that you can consolidate? Reducing the amount of money you have to pay on a regular basis can help free up money to deal with the rising costs associated with inflation.

3. Improve your cash flow

Improving cash flow can help ease some financial pressure. Find ways to keep the cash flowing, such as using electronic payments, sending out invoices promptly, and quickly following up on late payments from accounts receivable. It may not be a bad idea to seek a business line of credit specifically to help manage cash flow. This in and of itself can also help to deal with inflation-associated costs.

4. Optimize your business for productivity

Productivity can go a long way. If you find ways to get more focus from employees on tasks that directly lead to financial gain for the company, your financial situation will obviously improve, making inflation less of a concern.  Zenefits offers some great ideas for improving employee efficiency, including: delegating tasks, matching tasks to skills, effectively communicating, incentivizing, cutting out unnecessary tasks, and embracing telecommuting.3

5. Look for ways technology can reduce costs

Are there any tasks that can become more cost-effective by utilizing a technology that you're not currently employing? Look for ways where automation can come in and make improvements. This can work to boost employee productivity by allowing tasks to be completed much more quickly with less room for human error. It can also free up employees' time so they can get more work done and help to improve the bottom line.

6. Evaluate your supplier situation

While the amount you pay your suppliers may directly hinge on inflation in some cases, it's still wise to regularly evaluate your supplier situation. Always keep an eye on what your suppliers' competitors are offering and shop around for better deals. It may not be worth changing suppliers if you've built up a meaningful relationship with one, but chances are, you can find ways to save some money in this area, even if it means negotiating with existing suppliers.

Inflation can hurt, but even if you are in a line of business that suffers from it, it doesn't have to be a major burden if you take some precautions. Many of these will improve your business outlook regardless of the inflation rate.

1. https://www.kiplinger.com/article/business/T019-C000-S010-inflation-rate-forecast.html

2. https://www.businessnewsdaily.com/10690-inflation-effects-small-business.html

 3. https://www.zenefits.com/blog/top-10-ways-to-improve-employee-efficiency/

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC