How will inflation force you to change your business

How will inflation force you to change your business? Inflation is a funny thing. You can’t pinpoint the exact day it impacted your business. You can only look back and notice the changes it made. As an entrepreneur there are two paths you can choose: 1) let inflation happen and watch your business slowly fade, or 2) get out in front of inflation and watch your business take market share from businesses that follow the first path. Whether you understand inflation or not, every business is faced with the decision to be proactive or reactive. Cash flow is the single largest reason businesses fail and inflation can accelerate cash flow challenges if not managed properly.

In this post, I am going to cover the three basic areas that every entrepreneur running a small business needs to consider when thinking about inflation and their plans to succeed because of it. Every business is faced with basic challenges that all show up at different times when it comes to inflation:

  1. Wages
  2. Sale prices for products/services
  3. Costs

Not all three of these get impacted at the same time, so let’s take a look at each on individually.

Inflation will force you to change your wages

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Inflation shows up in the cost of living your team is facing on an everyday basis. The cost of food, gas, and other household expenses begins to slowly increase and the amount of disposable income your team has begins to slowly drop. This means your team has to pay more for less which eventually leads to them needing to make more money. They could begin looking at part-time jobs to help increase their take-home income but the primary decision they are considering is: “should I stay where I am or make a move to another job that will pay me more?” Your team may enjoy the job they have, the environment they are working in and the people they are working with but when their cost of living rises and reduces the amount of disposable money they have, they will seek other opportunities that pay them more.

Inflation will force you to change your prices

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Many entrepreneurs believe their prices are what makes their business unique. They reconcile the price of what they charge against their competition and are oftentimes reluctant to change them for fear of losing customers. A bird in hand is better than two in the bush.

🐦 + 🖐 = 💰

The fear of losing a customer because of higher prices is greater than working towards finding two new ones that would pay a higher price for the same value and experience. This is not an unfounded fear but is often a misunderstood fear. Price is one of the easiest angles to compete on and a business should be focused on serving their “ideal” customer, not just the customers that happen to use them. A successful business is always looking to add more value and get paid for it.

As inflation increases the wages and other costs in your business, you inevitably need to cross this bridge at some point. The good news is that your competitors will have to do this as well so the first company in a market to do this, make the adjustments and recalibrate their customer base wins the market. Consider being the first mover and taking a short-term amount of pain for long-term stability.

Inflation will force your costs to rise

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Your business depends on suppliers and vendors who are also facing the same basic challenges you are facing. Their wages and costs are rising which they fix by increasing their prices. This means the cost your business is being charged for products and services will rise. You can reduce your orders, negotiate different terms but at the end of the day, the prices your business pays will rise. Some suppliers will delay increasing their prices for all of the same reasons you may be concerned about doing the same thing. Some suppliers will immediately increase prices as they will want to get it over with and deal with any fallout sooner rather than later. The only real strategy to use if you want to save some money is to work with the suppliers that are not increasing their prices until they do. This is a short-term strategy as eventually, inflation will force up all prices.

Here is one idea to consider if you are concerned about how will inflation force you to change your business

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Your business presumably provides a product or service that the market needs. It’s doubtful that your business only exists because it is the lowest cost provider of a product or service. In light of this, the only idea you need to consider if you are concerned about inflation is:

How do we ensure that we are the best provider of the product or service that we offer?

Seems simple right? It’s not. If your business is the best provider of a product or service that the market needs, your business will be able to afford to pay its team more, increase its prices and pay for the higher costs associated with the business. If your business doesn’t do this, another one will so it might as well be yours. Prices go up. That’s a fact. How your business decides to handle that is style over substance.

One final note

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One final note

Inflation is not something your business can avoid. You can choose to ignore it and react to the inevitable changes or you can consider the impact it will have and plan accordingly. There is no downside to being proactive. If inflation was a hoax then you simply have put the work in to have a more stable and profitable business. If inflation actually happens then your business will be positioned to take market share from your competitors.


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