Inflation & Your Business

Inflation Pressure

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Small and medium-sized business owners are my tribe.  A spend my work days with them.  I socialize with them.  I own a manufacturing operation myself.  They are for the most part salt of the earth people.

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What does any of this have to do with inflation?  Too many business owners are unwilling to raise their prices in this crushing inflationary environment.  Many seem content to try and do with less as they do not want to offend or harm customers.

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The problem with this approach?  Eventually the business begins to eat itself and lose money.  This is not opinion, it is math.

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Take a look at the sample data on the right hand side of the page.  As the line items increase by various amounts, cost pressure builds on the business.  Do some of these increases appear unreasonable?  Insurance is up double digits in America.  Wages are under substantial pressure.  Steel, lumber, and chemicals are all far higher.  Many of these line items may in fact be low.

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The company sees various costs increasing and as a result, profit has disappeared.  Gone. 

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Three solutions.  A business can cut back and try to limit the amount of inflationary pressure on the profit and loss, it can raise prices, or combine cost reduction with price increases.

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The last 18 months has been brutal inflation wise but it also presents an opportunity for a business.

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Raise prices.  Raise them to at least offset your cost increases.  Inflation is in the news.  Everyone is feeling it.  You have a chance to "blame" outside forces right now.  It is in fact true.  It is not your fault.  Raise prices.

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By the way, in order to keep the business at least "flat" in net income, a price increase of at least 6% is required.

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See the lower of the two examples for the actual math behind it.

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