Let's be honest - "Inflation" has been a buzzword lately.
But when it comes down to it, what does it really mean for YOU? Why should you care about it and how do you ensure you understand enough about it to make the informed decisions that your business needs to make?
Check out this week's episode as we: 1) Define inflation in simple terms 2) Discuss what your business should be doing to be proactive and stay ready.
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Episode Show Notes :
Economics, Inflation, Recession etc
You can not honestly talk about the CFO GamePlan and ignore these topics and honestly, I understand why so many people do because it becomes political, its almost like we try to deal with it without discussing it because no one wants to alienate a customer base or their employees but you have to discuss this if you are going to really develop a solid financial strategy.
Warning some of the things said may not align with personal political agendas, and that is just reality, the goal is not to stay politically correct the goal is to look at the facts and understand what this means or what could this mean for your business.
First point is this: Economics has a huge impact on your business as many people have started to realize over the last few years.
Often the topic of economics is so politicized and discussed at a broad level that most small business owners tend to ignore it or they just don’t have the time to really think through how this impacts them.
Second point is what is economics all about. In the simplest perspective economics is how we use and make money by managing supply and demand. When you think of it this way it can start to help you understand why people do what they do when it comes to money and how that can impact your business. So let's look at some examples:
Baby formula shortage- to understand this you have to break it down into pieces
Supply chain that is connected
There is a dollar sign attached to every part of the process
See diagram - at this file
Supply and Demand is critical - the charlotte housing market
Expectations of the future matter - stock market example
People are willing to invest when they think the investment will be worth more money in the future than it is today, and the increase has to be worth the risk.
One of the most critical example of this is in the area of Oil & Gas - a very real conversation that is happening now within Oil companies is this -
Do we invest more money into upgrading our oil refineries and drilling because we don’t know if we can rely on oil from Russia and the Middle east as much as we have in the past (the opportunity says there is a big market for it and a lot of people want it)
Risk side - we know that the US is trying to move toward more clean energy which means the refineries and drilling will not be as valuable the more we shift to clean energy,
The Question - if we invest today will we have enough time to make our money back and an acceptable profit before the country shifts further away from
Third point Decisions change the game -
Personal choices you make like giving raises, going organic, etc
Political Choices - new tax law, regulations, EPA standards, global pandemic responses
Geopolitical - wars, military alliance, etc
Customer choices - demand in most cases customer are not required to buy your product so they can choose something different
See diagram - at this file and show the diagram with the dollar signs added and then talk through - what can you do
Find alternate suppliers
Produce more things in house
Come up with complementary items that help protect your business -
Cookware companies know that people only buy cookware so often and if they don’t use the cookware that timeline is longer so they started making Cookbooks and cutting boards, utensils
The cookbook allows them to make money from the book and it gives the person a reason to use their pots and pans, cutting boards and utensils more which means you will need to replace them faster.
Computer companies that create software - Microsoft makes laptops but they know you don’t buy a laptop every year but you do pay a subscription for some of their software every year.
Exit a risky line of business - often you see companies sell a profitable part of their business because they are looking a few years down the road and realize things are going to get more challenging so sell now and then focus on the next big thing (
Every business should map out its supply chain and ask yourself what are the biggest risk and weaknesses that you should prepare yourself for
The big takeaway is that you as a business owner have to learn how to think about