4 Ways To Buffer Your Business Against Inflation
On 1 June 2022, US Treasury Secretary Janet Yellen admitted she was 'wrong' about inflation.
Yellen said she “didn’t fully understand” the risks as consumer prices have lingered at record highs since late 2021.
Exactly what you want to hear from the boss of your country’s money …
“There have been unanticipated and large shocks to the economy that have boosted energy and food prices,” Yellen said. “And supply bottlenecks that affected our economy badly that I didn't, at the time, fully understand.”
Because everyone (except the leader of the US Treasury) seemed to understand for a while now that inflation is taking a toll on the American economy, with everything from gas to groceries seeing a steep price increase.
Inflation has climbed 8.3 percent year-over-year — near a 40-year high. The Federal Reserve has already raised its key interest rate twice this year and has signaled it intends to do so again at its next meetings this month and in July.
Invest in yourself
There is little that individuals can do to avoid inflation at the cash register. Still, legendary investor Warren Buffett says people can make certain moves to protect against its effects.
The first of these moves and one of the strongest protections against inflation is sharpening your skills and working to be at the top of your field.
The 91-year-old Buffett recently repeated the long-held advice he shared in 2009 at the end of the Great Recession: “The best thing you can do is be exceptionally good at something.”
Buffett added that skills, unlike the currency, are inflation-proof. If you have a skill in demand, it will remain in demand no matter what the dollar is worth.
“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you,” he said. “The best investment is anything that develops yourself, and it’s not taxed at all.”
“People will give you some of what they produce in exchange for what you deliver.”
Invest in a “wonderful business”
The next-best course of action to protect against inflation, Buffett says, is to own a part of “a wonderful business.” That’s because no matter what happens with the dollar's value, the business’ product will still be in demand.
He uses one of his own investments as an example: “If you own the Coca-Cola company, you will get a given portion of people’s labor 20 years from now and 50 years from now for your product, and it doesn’t make any difference what’s happened to the price level,” because people will still pay for the products they like.
“It doesn’t make any difference what’s happened to the price level,” Buffett said because people will still pay for the products they like.”
Covid, China, and Russia?
Whatever the true reasons behind the rapidly increasing prices and explosive supply chain crisis, the fact remains that consumer prices are rising at their highest rate in more than a decade, stoking fears that inflation may be poised to wreak havoc on the economy. This has left many average Americans wondering what it means for them.
So what exactly does this mean for your small business?
How inflation affects small businesses
Less purchasing power: Raw materials, inventory, and equipment become more expensive. Fuel costs are higher, which will have an impact on shipping costs. And this, along with supply chain issues, means that goods will likely take longer to arrive than you’re used to.
Higher cost of labor: With a higher cost of living comes an increase in the income needs of your workforce. This often leads to prospective employees negotiating higher salaries.
Higher costs of borrowing: While existing business debt is technically cheaper, taking on new debt will become more expensive as central banks increase interest rates to cool inflation.
Increased costs across the board can substantially impact cash flow, particularly for small businesses that are less likely to have a sizable financial buffer in terms of working capital.
Rising costs caused by inflation are naturally worrying. But there are several measures you can take to lessen the impact it has on your business, and planning ahead is key.
Subscribe to our YouTube channel, Renegade News, for more solutions to protect small businesses against inflation. And learn how you can break away from the banks and bureaucrats who are creating these problems!