Inflation and Small Business

In November, inflation rose at the fastest rate since 1982. Compared to one year ago, the inflation rate has risen 6.8%. And when inflation rises, other things like supply shortages and price increases often come with it. So, let’s talk about inflation and small business: what it means, what to expect, and how to protect your business.

2021 Inflation Impact on Small Businesses

Inflation is affected by supply and demand shocks. Much like 2020, 2021 was a difficult year for many American businesses as we try to rally from pandemic losses and hurdles.

According to CFOshare, there are a few causes of the unusual spike we’ve seen recently. Vaccine distribution has helped reopen the economy, this releasing pent-up demand. Supply shortages are widespread due to the COVID-related business shutdowns that started in 2020. And the three federal stimulus rounds also put huge amounts of cash in the hands of citizens and businesses.

When you have consumers with cash to spend, coupled with covid-related supply shortages, prices start going up, which contributes to inflation.

These supply shortages are a large part of the issues small businesses face when it comes to inflation. If these shortages are prolonged, the inventory-in-process items put pressure on small businesses because they don’t have what they need to complete their product offerings or to keep a stock of their most popular items, which interrupts the business’s income.

And as prices go up, employees in many businesses will go to their superiors and demand cost-of-living raises. What are the ways to ease the burden that inflation causes for your business? Let’s talk about it.

Streamlining – Focus on Productivity

With supply and labor shortages, your business has to be very intentional about your operations: cutting programs and products that take up more resources than the profits they generate, finding innovative ways to use new processes to increase efficiency, and the like.

Streamlining is a great way to make sure your current resources are creating the most momentum for your brand. You can do this by focusing on productivity.

Take a thorough look at your processes, step by step. When you analyze your operations this way, you can more easily identify the steps that can be optimized or cut out altogether. This saves you and your employees time and saves your business money.

Revisit Your Company Finances and Pricing Strategies

Just as you should be streamlining operations, you can also help minimize the impact of inflation by doing a thorough review of your business’s financial situation. Are there areas where waste is more apparent? Do you have expenditures you put in place during the harshest days of the pandemic that you could change or eliminate now?

Another way to combat inflation is to review prices: both for your products and services as well as your suppliers.

On the supplier side, you may be able to get better discounts on materials if you buy in bulk or buy multiple products from one vendor. You can also weigh the pricing shifts occurring on the shipping front – shipping in the U.S. and internationally have increased this year, and you may be able to find cheaper options than what you’re currently using, especially if you can order in more long-term plans.

As for your product and service prices, you are not alone – 82% of small business owners report they had to raise prices due to inflation, according to But 30% of those same owners fear that higher prices will drive customers away, a crucial setback for small and medium-sized businesses post-pandemic.

Before you hike up your prices, consider changing your marketing strategy a bit. If you can defend those price changes with more than just “because supply costs increased,” your customers will respect the transparency and you can also educate them more deeply on your brand’s value proposition.

We know that consumers are willing to pay more for higher-quality products and services. So show them why your business fits in those high-quality categories too.

Keep Your Payment Processes Organized and Automate When You Can

Inflation and small business may seem like an inevitable hardship, but there are many ways you can ride out this difficult climate. And one way to be sure your business is financially sound is to make sure your payment offerings are diverse and organized.

ReliaFund is your electronic payment processing expert – we can help you carry out secure transactions, take advantage of ACH and other fast payment processes, and we can help you create and implement custom niche solutions that provide the best tools for your specific business model.

We also offer real-time reporting and reconciliation, because you need the most current and complete payment information to run your business.

Contact us today to learn more.