Inflation is a big topic right now. How will inflation affect my business?
Well, let’s start with a basic explanation. What is inflation? Inflation is the decrease in purchasing power of money. It means that if inflation is high then $1.00 today will buy you less next week. We see this in the rising fuel prices, grocery bills, and other expenses at home and in our businesses as well.
You may have already seen supplies for your business increasing. Inflation also tends to push up wages as you may end up having to pay your staff more to keep them. This is because when inflation is high, employees tend to become even more wage sensitive if prices they are facing at the grocery store and gas station increase. This means you may be required to raise your own prices to ensure you are able to pay for the additional wage and operating expense costs you are facing.
In BC, we are seeing that the Minimum Wage is going up to $15.65 as of June 1, 2022. This was actually announced not long ago and is tied to the inflation that this worker group is seeing in costs of living. The Federal minimum wage rate increased as of April 1, 2022 (provincial legislation overrides this except for in federal jurisdictions or federally regulated employers). At the time of this writing, we have not seen any other announcements, but it is an indication of what is to come.
So what can I do?
So what can you do as a business owner? Well, if you have minimum wage workers in BC, be sure you are adjusting your payroll rates to meet minimums. For all staff (and other provinces), you should review to see when your last wage/salary increases were. If salaries and wages are reviewed by management annually then great, just consider when the next review is and if it is close enough that you can deal with things proactively. Start gathering research and information now as this year’s review may be more important than ever.
Also, check in with your people! How are they doing? Are they happy / do they have concerns? We are in a tough labour market and keep in mind you may not be able to replace any workers that leave quickly. Keeping them happy and content with their work both monetarily and non-monetarily is more important than ever. We can’t just focus on the monetary we to know all the feelings too.
Operating Costs / Prices
Review your operating costs, have you started to see increases? Are there places you can cut to reduce spending? Reducing expenses in some areas may help ease the burden of increased costs that are business-critical but cannot be controlled.
To do this, hop into your accounting software (Xero, QBO etc) and bring up your Profit and Loss Statement. Then look at last month and add comparative figures for the last 6 months. Are your monthly expenses increasing? Ask yourself why and if you can’t answer dig in. Or ask your accountant or bookkeeper what your average expenses are for the past 6 months. (For VHA bookkeeping clients we are happy to provide this at request – just reach out).
If you sell a product, then understanding the change in your gross margin (revenue – costs to make your product) is also mission-critical.
Once you know what costs are increasing you can consider what you can do about it one step at a time. Yes, this likely will mean some increasing prices. If you have not had a price increase in a while then I would jump on this today. If you already had a price increase recently and you are concerned about the blowback from customers/clients then assess the whole picture and put a plan in place for any required increases (schedule them). You can also work at the same time to reduce costs so that price increases are less impactful.
Then you can say yes inflation is affecting my business and this is how. From there you can determine your action steps on costs and prices. But there is one more thing that may help.
Once you know what is increasing, how do you decrease those costs? Well, it depends as some may be as easy as reduce the extra’s that are not business critical at the moment (maybe the iPhone 11 still works well enough to not bother getting the iPhone 13 quite yet. However, you should also consider technology that could actually help your business do more with less.
Technology can actually increase your productivity and that of your staff. You can implement new technology and also processes which combined increase their efficiency and productivity. That means they can do more with their time. If, your staff can do more, then increasing their wages will not seem as such a burden. It will also allow you to delay hiring and those processes will allow you to scale and grow your business faster.
The key, as you move forward, is don’t panic and don’t put your head in the sand.
Know your people, know your prices, know your costs and know when to take action. If can’t answer the question, “how will inflation affect my business” then it is time to find out.