The Consumer Price Index (CPI) numbers came out this morning and they were bad. Most economists had expected them to come in at 8.8%.
When they were reported at 9.1%, most were shocked. We haven’t had inflation numbers like these in 41 years.
May’s increase of 8.6% led the Federal Reserve Board to increase its benchmark interest rate by three quarters of a point, an almost unheard of move. Most were expecting a similar increase in that rate again this month.
Given these new CPI numbers, the Fed might be even more aggressive. I could go through all of the details and bore you to tears with the intricate details of what section of the economy increased more or less, but it all comes down to one thing.
You need to get ahead of this problem.
Let me leave you with this.
Please think about your business and how your numbers flow.
You have gross sales, and a cost of goods sold reflecting your variable costs. Next comes your general expenses that are more fixed in nature and what’s left is your profits.
Periods of rampant, almost out-of-control inflation are extremely difficult on small businesses because many don’t have the tools necessary to combat the problem and maintain their margins. Those tools all come down to properly prepared monthly financials, that will give you the information you need to maintain your margins and your profits.
If you normally only show a 10% profit and inflation eats away 9.1% of it, then you’ll be left with .9% or less than a 1% profit on your sales. That might mean that you would need to shut down and get a “real job.”
Perish the thought. Could you imagine that nightmare? Forgetabadit.
Please get your work into us in a timely manner. If you have accruals that need to be updated, please get us the new numbers for your receivables, payables, inventory, and whatever else that will make your monthly numbers more meaningful and exacting.
In normal periods, inflation is less of a problem because prices aren’t jumping around like five-year-olds on a playground. But that certainly isn’t the case today. Your monthly financials may be the only thing that will give you the information necessary to properly price your products and services so that your profits can remain constant.
Anyone who tells you that this inflation problem is going to solve itself in the short-run is either deranged or simply uninformed. No one is magically going to solve our supply chain problems overnight, let alone all of the other issues that are now driving our prices to historic levels.
Another thing to be mindful of is the mental side of bad economies. No one is comfortable doing price increases, but they do become necessary.
If you lose a piece of business because some competitor is coming in at last year’s prices, this isn’t something that should bother you. It’s going to happen. Get ready for it.
But that competitor will also probably be the first one who goes out of business in this mess.
You need to get your head around this. You need to protect your business. And you can’t let the fear stop you from operating your business in a professional manner.
One of the biggest mistakes I see Entrepreneurs making in difficult times is bad decision making because they just can’t think straight. There’s a lot of fear out there.
Where are things going? How will I survive? What do I need to do to get through this? Do I have what it takes?
These are all good questions, but you need to be strong enough to put it all into perspective. My point is to be smart enough to not throw out the baby with the bathwater.
The infrastructure and other things that made you a successful entrepreneur hasn’t changed. In many ways, that infrastructure is more important now than before.
Many look to make cuts in difficult times, and they cut the wrong things. We just went through a time where many had a glut of cash sitting in their accounts given the stimulus money that was available.
Many became used to freely spending that money. Now is just a different time where entrepreneurs need to be conservative. You just need to adapt to this new reality.
We’ll get you through this. You’ll need to keep your decision making processes among other things under control.
One other thing. If you or any of your friends haven’t yet claimed the Employee Retention Credit then please go to our website and sign up for it today. Something tells me that you or your friends are going to need that money.
We’re all going to get through this. Let’s get through it together.
*Words from our exceptional leadership