Just as the Economic Crisis effects of the pandemic were beginning to fade, the world was confronted with the prospect of an even more severe inflationary spike as a result of the Russia-Ukraine conflict and the ensuing sanctions, which caused significant disruption in global trade.
As a result of the Economic Crisis in the COVID-19 pandemic, broken supply chains, and component shortages have already delayed product delivery and slowed production lines, increasing consumer demand for decreasing availability.
This year, global food prices have risen by 30%, the highest increase since July 2011. Considering that Ukraine and Russia export more than a quarter of the world’s wheat, these increases are expected to continue even in a downturn in the economy.
Furthermore, the United States imports 8% of its oil from Russia, and sanctions against the country have contributed to price increases at the gas pump. Oil prices are currently $30 per barrel higher than they were at the beginning of 2022 and have recently risen to $139 per barrel, the highest price in more than a decade.
The impact of rising oil prices, as well as their knock-on effect on overall energy prices, will put small businesses in the United States to the test, as they have already struggled to adapt to supply chain and workforce shortages caused by coronavirus restrictions.
What effect will inflation have on small businesses?
Economic Crisis is Rising energy prices will affect all modes of production and logistics, resulting in an increase in basic business overheads and operating costs.
Additionally, sanctions and ongoing disruptions will affect the price of certain metals and other production materials, resulting in increased manufacturing costs.
States will respond to inflationary trends by enacting anti-inflationary measures such as interest rate increases and tax increases.
As the minimum wage rises, so does the minimum income required to survive in an inflationary Economic Crisis. Nobody can work if their most basic needs are not met.
Adaptation strategies and pointers for moving forward
When the economy is stable, liquidity is advantageous. Nonetheless, maintaining cash reserves during an inflationary period will be detrimental to your finances.
When inflation begins, a prudent move would be to invest in necessary materials, stock, machinery, or other hardware that will only increase in price in lockstep with market inflation. At this point, investing in labor-saving and other cost-cutting technology would also be prudent.
Additionally, alternative suppliers or manufacturing processes should be considered. The consequences of supply chain failures and delays have demonstrated their ability to cause widespread devastation in recent years, and the likelihood of such complications occurring in the current environment will only increase.
Indeed, exercise caution when auditing your operational expenses. Determine inefficiencies and waste, and tighten up existing processes. Invest now in process updates and improvements that will result in long-term cost savings.
Take the initiative to negotiate long-term, fixed-rate contracts with current suppliers or find new partners who are willing to negotiate with the goal of long-term mutual benefit. A fixed figure for a specified period greatly aids in budgeting and planning for cost spikes in other areas of business.
Locking in prices over a long period benefits suppliers as well, as they will receive a guaranteed income. Therefore, when negotiating, keep in mind that both parties can benefit concurrently.
Take the time to look at your debt allocations, too, when you have the chance. Discuss options with your lenders, including payment restructuring that takes into account rising interest rates and provides access to funds necessary to overcome upcoming obstacles.
The elephant in the room is the price of things
However, one critical aspect of incoming inflation is that it will encourage people to part with their cash extra readily. With the prospect of diminished purchasing power looming, many people opt to purchase now while the going is good.
Effectively communicating the necessity and justification for rising prices to your customers is critical. Arbitrary, impulsive price increases that ignore the market or your service or product’s core benefits will result in negative online reviews and lost customers, spurring them to look for alternatives from competitors who have better understood the situation and displayed a more appealing solution.
While price increases are unavoidable, how you communicate their necessity to your customers is entirely up to you. Make time for this in your customer service strategy.
Employ a strategy that emphasizes the product’s value beyond its monetary cost. Concentrate on communicating the company’s principles, core values, and practices that differentiate you from competitors in the market; environmental sustainability, employee-friendly policies, and so on. Provide ways for the customer to justify and feel good about their purchase from you.
The best way to prepare for future difficulties is to begin now
When an inflationary period begins, it is a good time to take stock of your expenses, pricing models, supply relationships, and customer concerns. Identifying and eliminating unnecessary costs and processes while proactively establishing a buffer to absorb any future financial impacts is simply the prudent course of action.
A clear mind makes better judgments. Taking stock of the situation, remaining grounded, and educating yourself on what you can and cannot do to positively influence the situation are critical components of digging in and preparing for future shocks.
Adjusting your business now to increase its resilience to inflationary shocks makes far more sense than scrambling to patch the cracks when the time comes due to your failure to prepare appropriately.