How Businesses Can Respond to Inflation and Rising Rates

During the first quarter of 2022, the U.S. Chamber of Commerce surveyed small business owners about the issues and concerns affecting them most in the current economic climate. Many business owners reported staffing, supply chain concerns, and financing concerns. But two-thirds of respondents voiced the primary concern of coping with rising inflation.

According to the Bureau of Labor Statistics, the U.S. inflation rate in June 2022 was just over 9 percent—a high we haven’t seen since 1981. As a result, small business owners who worked tirelessly to survive the worst of the Covid-19 pandemic are now grappling with significant increases in fuel, labor, materials, and inventory costs. The cost of financing also hit small companies hard as interest rates have been rising to curb inflation.

If you are concerned about how the current economic climate affects your small business, know that the experienced financial team at Ferguson Timar is here to help. We can provide your company with knowledgeable guidance and detail-oriented assistance designed to help your business thrive both now and as the economy evolves. In this article, we’ll discuss how family businesses and small companies can proactively work to “get ahead” of the negative consequences of high inflation and rising interest rates.

Keep Meticulous Financial Records

Maintaining detailed records when the economic climate is chaotic is especially important. By tracking every major aspect of your business, you’ll be empowered to make informed decisions about managing cash flow proactively. By tracking which goods or services are selling and which aren’t, you can draw strategic conclusions about ways to keep your business strong and profitable. For example, careful recordkeeping can alert you to:

  • Whether you should strategically scale back the options you ordinarily make available to your customers or clients, based on the success of varying goods and services
  • Whether you should adjust your labor force’s hours to better meet demand without incurring unnecessary staffing costs at non-peak times
  • Whether increased costs of specific supplies are so taxing that you may want to consider reformulation or researching alternative suppliers

Get Creative About Compensation

Labor costs have increased, primarily due to cost of living increases resulting and rising inflation. If you can’t afford to offer your workers a pay increase across the board, consider creative ways to flesh out their compensation more broadly. Some innovative compensation supplements worth considering include:

  • Paid time off
  • Adding flexibility to your workers’ schedules, working locations, or both
  • Providing wellness, transportation, child care, and food stipends
  • Offering equity shares
  • Provide reimbursements for tuition, additional training, or student loans
  • Invest in an employee discount program
  • Take your workers on a trip or celebrate them in ways they’d truly appreciate

Approach Financing Needs Strategically

Interest rates are rising to combat the challenges caused by inflation, and they affect everything from the cost of living to various financing options. If your business requires a loan, take interest rates into account when determining how much debt to assume at this challenging moment in time. Similarly, you may benefit from:

  • Moving variable-rate loans to fixed-rate options to avoid costs that arise when the markets shift
  • Raising capital by selling equity, as you won’t have to pay interest on what you raise
  • Connecting with the experienced team at Ferguson Timar to discuss alternative financing options designed to benefit small businesses during periods of economic uncertainty

Revisit Conventional Wisdom with Fresh Eyes

Well-meaning loved ones may offer cliché advice that doesn’t initially appear helpful. However, suppose you think critically about how conventional wisdom may apply to your circumstances. In that case, you might find that one or more of these approaches can benefit your business at this time:

  • Improve productivity
  • Raise prices strategically
  • Critically assess your labor needs
  • Streamline processes
  • Substitute supplies or materials
  • Reduce overhead
  • Minimize inventory
  • Stock up when supplies and materials go on sale
  • Renegotiate contract terms
  • Cut expenses

Seek Personalized Financial Assistance Today

There is nothing easy about running a family business or small company during challenging economic times. Connecting with the experienced team at Ferguson Timar will allow you to benefit from personalized, professional guidance designed to maximize your resources and mitigate risk. We look forward to speaking with you.