How to Prepare Your Business for Inflation
To me, it's obvious that we're heading into a period of high inflation. If you aren't old enough to remember doing business in the 1970s—under Ford and Carter—it's hard to appreciate how dramatically the economic environment changes when inflation rises above, say, 6 or 7 percent a year. And that's where we're going. When? I can't say. But I have no doubt it will happen sooner rather than later, for two main reasons. First, inflationary pressures are building, and the government will be able to contain them for only so long. Second, I doubt government officials will really want to contain them, given that inflation lets us pay down debt with cheaper dollars. We are already seeing rising food and commodity prices. Eventually, I suspect, there will be a spike in the consumer price index, at which point the public's entire mentality will change.
So you can gain an edge by changing your behavior now. For example, this is the time to acquire hard assets, which will retain their value as the purchasing power of the dollar declines. And though I would never advise loading up on debt unnecessarily, if you have a good use for it and can get a fixed rate, don't be scared of taking it on: You'll wind up paying it off with cheaper dollars. You might also try extending your contracts and leases with suppliers an extra 10 years or so and locking in current prices. As for real estate, it's better to own than to rent, but if you do rent, you might want to see about getting an extension on your lease. Today, your landlord will probably think, It's a fair price, and I have a good tenant who pays me on time, when a lot of places are empty. Two or three years from now, you may find yourself negotiating in an inflationary environment with a landlord who's thinking, I can't commit to this rent. I have no idea what my costs will be next year or the year after.
Finally, I would try very hard to raise prices, even if it's just 1 or 2 percent a year. That way, when inflation spikes, you won't have to hit your customers with a big increase all at once. If your competitors are forced to do that, you'll have an opportunity to increase your market share at their expense.
Please send all questions to AskNorm@inc.com. Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, is now available in paperback under the title Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.
NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.