Emergency Inflation Device


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Emergency Inflation Device
By: Tama Swan, Associate Editor
Issue: 2009dec

Anticipating higher prices for goods and services and planning accordingly may help keep you afloat in troubled business waters.

As the dollar weakens against other forms of currency and the government considers another round of stimulus loans, some economists predict price inflation for products and services will begin to take hold. This is especially bad news for small-business owners since they typically suffer most when prices rise.

Even without inflation, small businesses typically pay more for products and services than do large companies. In 2008, energy costs for food manufacturers, leather and allied products makers and technology manufacturers were twice as much per dollar of output than their larger counterparts, according to a survey done by the Small Business Administration’s Office of Advocacy.

Elevating prices to make up for higher operating costs isn’t really an option since everyone will feel the crunch and start spending less. Only firms that sell to customers overseas will benefit from a weak dollar.

Another danger is that increased inflation could cause the Federal Reserve to raise interest rates in an attempt to level off prices, which would raise the cost of borrowing money.

In order to beat inflation before it takes hold of your business, consider these tips:

Buy inventory now. Stocking up on goods now, while they’re cheap, can keep business costs down later. Also keep an eye out for competing companies shutting their doors. Industry closings let you scoop up unneeded inventories at bargain prices.

Renegotiate contracts. Extending the length of your contracts with vendors and landlords can save money in the event of a rate hike. But take care not to extend a contract further than you can handle the payments.

Pay off debts. Try to reduce the balance on interest-accruing debts before rates increase. If you anticipate needing cash, apply for loans now while rates are lower.

Get creative. Consider linking contracts with the Consumer Price Index. As it climbs higher, so do your prices. Make it more palatable for vendors by building in items that appeal to them, such as on-time payment.

Form an alliance. Get the same treatment big companies do by joining or forming an alliance of small companies that collectively bargain for better prices.

Source: www.wsj.online

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