The state of the economy and high inflation rates are hot topics of late. High inflation rates have prices at the grocery store, gas pumps, and everywhere else, eating at your wallets and significantly diminishing your disposable income.
First, it is essential to understand how inflation affects you and the risks it poses in your life. The ultimate risk of inflation for you is that your purchasing power declines. Not only are your day-to-day needs affected, but inflation has risks and declining dollar value that seeps its way into your investment portfolios.
What You Need To Do To Protect Your Business From The High Cost Of Inflation
Inflation impacts every aspect of your finances, which is why HerMoney and the Alliance for Lifetime Income released another chapter of their State of Women 2022 study, which found that 73% of women are worried about inflation and listed it as their top financial fear. The survey stated that almost nine out of ten women are more worried about the risk of running out of money than the risk of not enjoying their money right now.
One of the most significant risks to retirement savings is inflation. As inflation rises, the value of your dollar decreases. For example, if you hid $50,000 today and didn’t touch that money for ten years, if inflation averages 3% per year, that money would only be worth $37,000 in 10 years because of inflated costs of goods and services.
With that example, you can see why inflation risks your finances. The reality is that inflation is expected and will continue for years to follow. But what is in your control is how you can protect yourself and your finances against the detrimental effects of inflation.
High inflationary times are a reminder that you need to protect your business and your income from inflation. Get diligent at managing your business finances.
What You Need To Do To Protect Your Business From The High Cost Of Inflation
Take these steps to ensure you are protecting your business and income from inflation risk:
1. Review your prices
The price of your offers must be reviewed a minimum of once yearly. You must maintain your profit margins, so examine the cost increases you have experienced in your business and price adjust to reflect those increases.
2. Create a business financial plan
A business financial plan helps you establish your revenue goals for the next year and maps out the costs that are required to achieve those revenue goals. One of the most important and valuable benefits of creating a financial plan for your business is ensuring you are maintaining your net profit margins and maintaining competitiveness in your industry. As inflation rises, your net profit margin should not be shrinking.
3. Invest in yourself
The best investment that offers the highest return rate is when you invest in yourself. Take the time to educate yourself on financial literacy and your business finances. Stay on top of your industry to ensure you provide the best customer experience and maintain competitiveness.
The bottom line is that inflation is a normal part of the business that must be monitored. Be proactive in dealing with inflation to ensure you aren’t taking a financial hit on your business or personal finances. When you are considering higher costs, do not forget to increase your income level as well. Business owners tend to put their wages on the back burner, but I encourage you not to. Your cost of living is increasing along with everything else, so include that in your financial plan.
Melissa Houston, CPA is the host of She Means Profit podcast and blog. She is a Finance Strategist for CEOs where she helps successful business owners increase their profit margins so that they keep more money in their pocket and increase their net worth.
The opinions expressed in this article are not intended to replace any professional or expert accounting and/or tax advice whatsoever.
