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How Does Inflation Affects Small Businesses?

Updated: Oct 21


contributor Ravan Clowers

Christina Animashaun/Vox


Inflation Crisis

Inflation raises prices for gas, food, and other goods and services. Economists say a poor economy hasn't hurt airlines, movie theaters, or specialty retailers. In May, a broad inflation index jumped 8.6%, the most since 1981. Consumer confidence in personal finances and the economy plunged to 50.2% in June, the lowest ever measured. In the last two years, inflation has increased firm spending and owner pay. According to a January 2022 Goldman Sachs poll, 85% of small entrepreneurs say market circumstances affect their organization. Is this the top three problems? Inflation, supply chain issues, and a lack of competent workers all contribute. 84% of these business owners say rising costs have become worse since September 2021, and 76% say it has hurt their company's finances.


Impacts Small Businesses

Since the pandemic began, businesses have tried to keep up with inflation's costs. Supply chain issues raised product prices by making them harder to procure. Rising inflation, supply chain constraints, and employee shortages force small businesses to watch expenses. Business.org polled small business owners in 2021 and found 89% had hiked prices since the epidemic began. 26% of firms' supplies and services have risen by 20%. Over 80% of small-business owners have hiked rates to battle inflation since running a business is more costly. Some customers may balk at the price hikes. Reducing operating costs may help manage inflation. Due to the economy, many business owners have cut inventory, marketing, and other costs to safeguard income.


Solution

Depending on a company's kind, goods, services, or location, inflation might affect its bottom line. Small businesses may still analyze performance and anticipate their financial future. Expense-tracking software may expedite small business operations. Business owners should research fundamental accounting principles to better understand their finances. Businesses must budget and save. Small enterprises must expand earnings and assets to keep up with inflation. Revenue growth to match inflation and competition is another option. Businesses may enhance their marketing by adjusting their sales technique for long-term success. Investing in technology may help small firms improve productivity and save expenses. A small-business loan may help your company invest. The Fed raised rates for the first time in almost two years in March. Small enterprises are influenced by fiscal laws because they modify economic patterns. The Federal Reserve raises interest rates to fight inflation. Following inflation and projecting future product and service prices may help manage cash flow.


References

Camberato, J. (2022, May 25). The Impact Of Inflation On Small Businesses And How To Manage It. Retrieved from https://www.forbes.com/sites/forbesfinancecouncil/2022/05/25/the-impact-of-inflation-on-small-businesses-and-how-to-manage-it/?sh=64ac8c7bae41

Findling, D. (2022). What Is Inflation and How Does It Affect Small Businesses? Retrieved from Lucus, A. (2022, June 19). Inflation and recession fears are squeezing some industries more than others. Retrieved from https://www.cnbc.com/2022/06/19/inflation-and-recession-fears-are-squeezing-some-industries-more-than-others.html

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