AS THE GOVERNMENT considers another series of stimulus initiatives, the threat of inflation looms larger for small-business owners.
The August reading of the Consumer Price Index stood down 1.5% below that of the year-ago period, but analysts and economists say they are concerned that new spending, combined with a raft of earlier initiatives, will soon trigger higher prices for goods and services.
“When the government borrows a lot of money, at some point, they have to pay for it,” says Rob Fairlie, an economics professor at the University of California at Santa Cruz. “One way to do that is print money, and, if they print more money, that printing devalues the currency.”
Stock up – If you think inflation is going to heat up, buy as much inventory as possible now, while it’s still cheap, says Bill Dunkelberg, of the Federation of Independent Business in Washington. In addition, keep an eye peeled for any closings in your industry, he says. As competitors shutter, consider buying up their old inventories at heavily reduced prices.
Lock down – Many firms were able to negotiate lower-price contracts with their vendors and landlords thanks to the downturn; try to lock down those deals for longer, says Joseph H. Astrachan, the executive director of the Cox Family Enterprise Center at Kennesaw State University in Kennesaw, Ga. But be aware that by locking down longer-term contracts, you’re risking getting stuck paying rent or some other cost for as long as the contract — even if your business goes under, he says.
Pay off – As rates often rise during inflationary periods, pay off your interest-accruing debts as much as possible, says Astrachan. However, if you’ll need working capital, which is often the case when rates rise, try to lock in loan rates now rather than pay off your line, he says.
Tie in – You might also tie contracts to the Consumer Price Index, Astrachan says. So, as the CPI rises, so too will your prices. To sweeten the deal for vendors, “build in things they want,” he says. For instance, include a clause in your contract that stipulates that the linked rate only applies when payment is received on time.
Join together – Big companies can command lower prices, because, well, they’re bigger, but your company can also take advantage of economies of scale by connecting with other small companies to make joint purchases, Astrachan says. By joining so-called buying cooperatives like UniPro Foodservice, a foodservice distributor in Atlanta, or an informal group that sprouts in your own community, you can leverage the group’s buying power to negotiate lower prices, he says.
In a sign that inflationary pressures are already taking root, the U.S. dollar has begun to soften. In the last six months, the dollar has fallen more than 11% against a basket of trade-weighted major currencies, the U.S. Dollar Index Futures (DXY). Last Friday, that index touched 75.9, its lowest level since August 2008.