When it comes to inflation, businesses need to prepare for this possibility because if they do not keep up with it, they can see their business go under.
This is especially true heading into 2022 because the U.S. inflation rate was the highest it has been since 1982 at 6.8%.
If you are a business owner that does not fully understand the impact of inflation, perhaps you should seek business consulting services. Until then, here is some business evaluation advice for inflation.
Inventory
When it comes to inflation and business evaluation, one of the first things that you need to look at is the cost of inventory. During the pandemic, some items for small businesses rose in price significantly.
One example of this is the price of chicken wings going up for restaurants. It went up 35% last year, so now that is a business expense that owners need to account for.
So, let’s say one pack of chicken wings typically costs $100 for you to get. If it went up to $135 suddenly, you would need to figure out how to make up for that loss in your business. In that situation, some of your only options would be to raise the price of any meal choice that contains that or even hire one less employee.
Shipping
It is no secret that there is currently a big shipping issue in the world right now. From significant delays in orders to rising costs, this can severely hurt businesses that rely on shipments to come in consistently.
Let’s say you usually wait for an item to come in for about 1-2 weeks. What if it started taking 5-6 weeks for your item to get delivered?
Then, what if that order usually costs $200 to ship but now suddenly that order is going to cost $1,000 to ship?
With the rules of supply and demand as a factor in inflation, your business would have to react and charge a higher price for that item to keep your business value consistent.
Labor
Finally, you have your employees and their cost of living. You can argue that this is a domino effect because employees notice it in their daily life outside of work.
When that happens, they begin to realize that the money they may have thought was enough a few months ago suddenly barely gets them by. In this situation, it could create a loss of morale for employees and force some to find a job that pays better if you do not raise salaries alongside inflation.
Use Business Consulting Services to Take Action
These are just three ways that inflation can impact a business’ value. If you are unsure how to plan for ways to counter this, perhaps consider using business consulting services to guide you.
Do you want more business evaluation tips? Contact us today to get started.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of our clients’ same issues.