How Startups Can Manage the Risk of Inflation

With its campaign of raising interest rates time and again, the Federal Reserve appears to have inflation on the run. But there’s no denying that the economy feels a bit unstable these days.

For the average consumer, things like rent, travel and gas prices might be the biggest complaint. For entrepreneurs trying to get new businesses off the ground, inflation creates even bigger challenges.

Some entrepreneurs may be facing increased demand and minimal supply. Others may struggle to build their audience due to economic uncertainty and other factors. Despite those challenges, startup business leaders can manage the risk of inflation to ensure their companies stay afloat.

Even so, consumer shopping behaviors have shifted, and businesses have had to adjust accordingly. Although economic winds can change at any point, many experts believe inflation will continue to rise in the next year. As such, let’s take a closer look at the causes of inflation in 2023, how it might impact your new business, and what you can do to manage risks if inflation continues to grow.

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What Caused Inflation to Rise?

Business owners faced a tumultuous couple of years due to the COVID-19 pandemic. At best, many lost significant revenue. At worst, millions of people lost their jobs from permanent business closures throughout the country. Between those closures, more layoffs from other businesses trying to keep going, and supply chain issues, it came as no surprise to many that the economy took a negative shift.

Today, it’s important to keep in mind that the recovery from COVID-19 has been a good one. When you consider the lowest point we were at to where we are now, you’ll see a stronger economy than most people assume.

However, we can’t deny that we’re still experiencing high inflation. Some of the greatest factors that have contributed to inflation in 2023 include:

  • A shift from services to goods
  • Vulnerabilities in supply chains
  • The housing market
  • An increase in remote work
  • The Russian invasion of Ukraine

As these factors cause a variety of supplies to rise in cost, consumer behaviors are changing — mainly in the form of tightening budgets. Demands and expectations are also shifting, largely due to supply chain issues. People will tend to support businesses that offer consistent products and/or services without delays.

The good news? Inflation is decreasing, largely in part to federal interest rates increasing. Understanding some of the major causes can help you plan ahead and fight back against them as you’re launching your business, so don’t let these causes deter you from moving forward.

Control Your Costs

Although a large part of the economy is out of your control as a business, you can control how you respond to it. Mainly, you can keep your spending as a business under control. That can be difficult when prices are rising and you’re trying to meet up with consumer demand.

Start by reviewing your budget so you can determine if you’re overspending anywhere. It’s the easiest way to see where you can cut back without damaging your processes.

Other cost-reduction strategies you should consider adopting for the time being include:

  • Purchasing or renting used equipment;
  • Buying supplies in bulk;
  • Updating your marketing strategy;
  • Diversifying revenue streams.

Additionally, don’t be afraid to look at technology — such as AI or automation —  to help your business stay afloat and even grow as inflation rises. If you aren’t able to afford a lot of employees, utilizing technology to automate certain tasks can help you maintain a certain level of production without hiring anyone new.

You can also utilize technology that makes it easier to track your expenses. The more clear your budget is, the easier it will be for you to spot when spendings get too high or when savings become too low.  Expense management software platforms put you in control of your bottom line.

As a bonus, many of them utilize automation so you get real-time information and data without having to hire someone specifically for that job. Plus, it eliminates the risk of human error, so you’ll feel confident that your expense reports are accurate every time. While this software does involve a high initial cost, it will pay for itself. Not only will you save more money in the long run, but you’ll also save yourself the stress that accompanies tracking your expenses yourself.

See Also: How The Federal Reserve Hiking Interest Rates Affects Your Startup

Embrace Your Newness

Don’t use being a startup as an “excuse” to struggle against inflation. You’ll face the same challenges as major enterprises, but you’ll have to handle them differently. You’re not going to have the same resources as big corporations.

But, there can be benefits to being a small startup during times of high inflation. For starters, you likely have fewer moving parts than a large corporation. There’s less to keep track of, so it’s easier to see where your money is going and why. You can take a look at your resources, understand what brings value and what doesn’t, and make effective changes quickly that better fit your needs and your budget. That’s not easy for enterprises with dozens of moving parts. It takes longer for them to track spending and implement changes.

Additionally, you likely have lower operating costs than big businesses and fewer people to schedule meetings with. While you may take on a lot of roles as an entrepreneur, you can use this to your advantage during times of economic uncertainty. The lower your operating costs, the less you’ll be impacted by inflation.

Although you’ll inevitably want to grow your business and create a stable future, take comfort in the meantime knowing you have less to lose right now than major corporations. Stay the course, be prepared to make necessary changes to boost consumer confidence, and understand that this inflation hike won’t last forever. While those multiple hats you wear might seem a bit heavier for a while, it will be well worth the extra effort when you can keep your business above water despite the struggling economy.

Inflation has impacted almost everyone in some way. But, it doesn’t have to be a scary time to have a startup. Keep these ideas in mind to manage your business effectively, and you’ll come out on top as the economy starts to stabilize.

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