by Rob Joseph, Director, BeaconCFO Plus
In early June, the rate of inflation in the United States reached 9.1 percent—the fastest increase we have seen in four decades. It is hard to escape the record-breaking pace of inflation: Many of us are cringing at the gas pump and experiencing sticker shock at the grocery store.
Inflation is also affecting our businesses. Small- to medium-sized business owners in particular have likely never had to navigate this type of significant change in the cost of goods and labor. The U.S. Chamber of Commerce surveyed small business owners across the country in March and found that 85 percent of SMBs are concerned about inflation: 1 in 3 rank it as their highest concern.
As costs rise and profit margins fall, businesses are trying to make sound decisions that will sustain their operations for the future. This puts pressure on CFOs across the country. We must make critical decisions on behalf of the businesses we serve during a turbulent time for our economy. The risks are high, but there are ways for businesses to move forward with caution and optimism.
We strongly recommend discussing your specific short- and long-term strategy for navigating inflation with a financial professional. Here are a few things to keep in mind:
- Accept that we aren’t going back to normal. Perhaps the most harmful thing your business can do is refuse to make any financial adjustments. If your central goal is to keep your business afloat, that will require action.
- Protect your cash flow. This means taking a hard look at the impact of rising labor and material costs for your products and services. Be proactive in reviewing your numbers so that you have the time to make adjustments before you have cash flow problems.
- Maintain your bottom line. You must be flexible and willing to make changes to save money where possible. This might mean switching a supplier for a key ingredient that has substantially risen in price or using an alternative material. It could mean reviewing your overhead costs and finding places to save, such as lower insurance rates or different software subscriptions.
- Consider a price increase. No surprise: Consumers are not fans of price increases. However, that doesn’t mean that increasing your prices is not a logical or feasible step for your business. You must evaluate your pricing strategy—and be willing to invest in the future of your business—if you want to continue to grow in this economic climate.
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If your small business is operating without a CFO, you may benefit from fractional CFO services. Without the burden of hiring and compensating a full-time CFO, your business can gain critical insights and leadership from an experienced financial professional.