There’s no question that we are seeing higher prices for products and services. But does that mean we are entering a period of inflation? Many experts are weighing in on the question of what a post-COVID correction is, and what is the new reality. Are we seeing inflation or just more correction in the economy?
MLA understands business and can help you discern the potential effects of higher prices for products and services. Gary Wilkins, a strategic principle at MLA, was recently featured on ThinkTech Hawaii, talking about inflation.
This is the second of three articles on the threat of inflation, and how it could impact your business. Previously we looked at how low-interest rates can contribute to inflation. In this article, we will look at the high demand for products and services.
The unprecedented disruption by COVID-19 to both producers and consumers has created wildly fluctuating demand for goods and services:
Small to medium-sized businesses are trying to navigate volatile markets, problems with suppliers, and challenges in hiring the people they need. This can create cash flow problems in multiple places at once.
One simple response to talk of inflation is to raise prices for your products or services. However, this can be premature and can contribute to other challenges down the road.
Businesses may need to raise prices, both because of the increased costs in labor and materials, but also to not miss out on a general market trend. But higher prices can mask deeper cost and management issues, and a volatile market will eventually expose these problems.
A better solution is to have early warning systems and control of financial reporting:
Even if your financial systems are good, you still need to identify the key metrics which are your leading indicators. This creates an early warning system for possible changes in conditions which then allow you to dig further.
Developing new metrics while managing everything else can be an overwhelming thought. You need someone who can understand your business, and your financial systems to develop the right metrics and help you track them.
MLA can do that. Contact us to learn more.