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How Inflation Impacts Business

Inflation has been a hot topic over the last several years, and simply put, it makes everything more expensive. It’s when money loses value over time and prices go up. But how does inflation impact small businesses and the way they operate? Steady inflation can be healthy for a growing economy, but rapidly rising inflation causes the costs of doing business to spike. The truth is, not only does inflation affect the bottom line, but every part of the business that involves money (which is most of it).

Where Does Inflation Make an Impact?

Inflation can be a huge challenge, especially for small businesses, in that it affects your ability to plan ahead, maintain your budget, and continue to expand. Firstly, rising costs are making it more expensive and more difficult for businesses to maintain competitive prices on their products and services. This forces leaders to determine if they should raise their prices or not, which can risk losing you customers. But if you don’t raise prices, you have to swallow the extra costs.

Inflation has a heavy impact on direct costs like utility, equipment, leasing, and transportation costs. Additionally, inflation changes the way businesses approach daily operations and future decision-making, such as cutting any extra expenses in areas like training or marketing, being unwilling to take financial risks or make moves to expand, and laying off employees or pausing hiring.

How to Deal with Rising Inflation

It’s not impossible to survive or even thrive during periods of high inflation. What small businesses need to focus on during these times is communicating with customers and managing expectations when it comes to price increases, set plans in motion to withstand the increased cost of doing business, and adjust costs where possible without foregoing quality.

If inflationary trends continue to get out of control, all businesses will end up taking hits and making difficult decisions in addition to consumers spending less to afford their basic needs. And while there is no way to determine when inflation will subside, it will start to level out eventually. In the meantime, businesses need to be diligent, frugal, and sensible.

Need help figuring out where to reasonably cut costs in your business or where to allocate your resources for pushing through this inflation period? Reach out to the team at Republic Bank where we have financial professionals ready to set you up for success and help you weather the storm. Call us at 800-526-9127 and be sure to check out other financial advice on our blog!

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