Serious inflation is coming. Should Canadian small business owners be worried?

Why can’t Canadian small business owners have nice things? As customers are returning to Canadian businesses with COVID-19 easing, owners have enough to worry about getting customers back, maintaining a workforce, and looking after health and safety. But are they also going to be rewarded for recovering sales with a nice big dose of inflation to deal with at the same time? 

Experts are predicting a rebound in consumer spending as lockdowns ease and people return to shopping again. But for businesses, that rebound could come with higher costs and pressures.

The Canadian Federation of Independent Business (CFIB) is predicting that prices will rise by about 3.3 percent over the next year or so as a result of ongoing delays in the supply chain and shortages in material resources. It should be noted that this figure is based mainly on the prediction of small business owners themselves, rather than any close scientific analysis, but this is the point: owners have a sense of what’s coming, because they’re already living it.

Shortages in everything from shipping containers to lumber and metals to microchips has meant products ranging from food to furniture to cars are in short supply, and suppliers are charging more. Even when shortage of supplies is not an issue, factories are running well behind schedule due to shortages in labour. 

All of this translates into higher costs for goods and services, meaning businesses must pay more and wait longer for goods to arrive in their stores. Who ends up covering those increased costs? Consumers. 

But those inflationary pressures, coupled with pandemic-related requirements, can also lead to other cost increases for small businesses in rent, payroll or interest payments.

The easiest approach is just to weather the storm and hope things clear up. If inflation is only a temporary situation — one that will lessen as the effects of the pandemic disappear and the economy and social life return to normal — then businesses may choose to just ride it out until things stabilize again. But if it seems that inflation will persist and material shortages and supply chain issues will continue, taking action may be the smart move. 

So what are some of the things that businesses can do to minimize the pressures of inflation and keep price increases to the smallest possible amount?

• Take advantage of whatever government programs might still be running in your area that offer rebates, subsidies or grants. If governments also offer subsidies or free access  to rapid COVID-19 testing for your staff, that could also help alleviate problems with employee shortages. And so, of course, could encouraging or mandating employees to be vaccinated.

• Cut costs as much as possible. Lowering overhead costs and eliminating unnecessary expenses could help delay or prevent rising costs. It may be a good time to add technology that could streamline your process and lead to a reduction in expenses.

• Turn no-frills into a marketing advantage. Consider a new product that’s more in line with the needs of a market craving affordability. Think about how you can retool products or services to differentiate and serve needs, while cutting out some of the bells and whistles a customer base struggling with inflation is more than happy to forgo. It’s possible to do so without sacrificing margins – look at how Ford came up with the Tempo and the Mercury Topaz (not theback in the 80s in response to price pressure from new competitors. 

• Provide yourself with as much cost certainty as possible for the future. If borrowing is necessary, try to do it as early as possible. Use smart cash flow analysis tools to get ahead of the trends as they begin to show. If the value of the dollar falls due to inflation, then payment on the debt becomes cheaper. And locking in a loan at a fixed rate protects you against any future rate increases. For the same reasons, it could be a good idea to invest in financing your working capital or shifting credit card debts into fixed-term loans.

• Try to sign longer-term contracts or leases with suppliers, employees or landlords. While these may lead to increased costs in the short term, they will provide cost certainty and protection as inflation continues or increases.

• Keep an eye on your competitors. If they’re raising their prices, it means you can raise your prices as well without worrying about customers seeking a better price elsewhere.

Inflation is worrying, especially when coupled with the ongoing effects of a pandemic. But it doesn’t have to be a disaster. If you can plan ahead and minimize surprises, you can ensure your business is in good shape when normality does return.

Looking for help understanding your pending cash crunches before they’re obvious? Sign up for free for Cash Flow Advisor, our intelligent tool that helps you understand and plan for better business health.