Surviving Inflation

Posted on: July 27th, 2021

Talk of inflation continues, and more government spending is in the works. But how do we know what the impact of that spending will be? And what can we do now that will position our businesses for surviving inflation?

Since its founding in 2006, MLA has been through difficult economic times. And our team has decades of experience in finance that can bring a valuable perspective and expert advice, including on preparing for inflation. We were recently featured in an article on inflation on CFO360.com.

Prepare for Post-Pandemic Inflation

This is our third article on preparing for inflation. Click here to see the others or see a condensed version of these articles in the CFO360.com post mentioned above.

Aggressive Government Spending:

Aggressive government spending is a well-documented factor that contributes to inflation. And a substantial investment in infrastructure is nearing approval. This is on top of the massive response of the US Government to the recent COVID-19 pandemic.

The US government has committed over $5.2 trillion to pandemic measures.
This commitment is over a quarter of GDP, and US pandemic spending is one of the highest fiscal commitments in the world.
A significant portion of government spending has been on unemployment benefits, which contributed to significant numbers of workers staying out of the labor market.

This government spending will impact the economy for months and years to come. And the specific effects will not be understood for some time. While these government decisions are out of our hands, we can take steps to protect ourselves against their potential impact.

Vendor and Customer Relationships:

Previously, we have discussed the importance of cash reserves and effective financial reporting to provide early warnings against the impact of inflation. We will now discuss a third essential place to prepare, which is vendor and customer relationships:

Most businesses pay close attention to their customers, but vendor relationships can create a bigger impact during periods of inflation. Since most vendors supply multiple companies, it is a good idea to talk through contingencies if supply disruption occurs.
Payment terms are a significant aspect of vendor and customer relationships. If you have a major customer who suddenly goes from 30-day pay to 60- or 90-day pay, that will dramatically affect your ability to pay your suppliers. Having contingency plans in place helps you make decisions during stressful situations.
In addition to cash reserves, good payment history is essential. You must identify which vendor and customer relationships are key to your organization. Then initiate policies and communication that allow increased visibility.

Surviving Inflation in Your Business

While small to mid-sized businesses can be overly affected by inflation, they are often in the best position to respond quickly. These businesses represent a network of relationships that often involve other community concerns.

The pandemic has shown us that we can get things done quickly in an informal way that would be too complicated during regular times. That same spirit of business ownership can help us survive the effects of inflation.