Effects of Hyperinflation on Business
The “cost of living crisis” is all over the news. But this is the UK media relabelling an economic term we know called hyperinflation. While inflation is normal in most economies, hyperinflation is dreaded by consumers, businesses and governments. While hyperinflation is often coupled with mass confusion and speculation, what everyone does understand is that inflation means rising prices. However, that is where the clarity about inflation usually ends. While those “rising prices” are a national average, the way inflation affects an individual business depends on its unique economic circumstances: what industry it’s in, how its particular costs are rising (or falling), the productivity of its workforce, the nature of its supply chain, the level and type of its debt (if any) and so on. As a result, generalized inflation advice for all businesses can seem confusing and contradictory.
Hyperinflation concerns us all and can lead to disaster if a business doesn’t take steps to mitigate the effect it has on business operations. The cost of energy with the upcoming UK winter this 2022 will have an impact on most companies.
Understanding the business debt is the first step to managing hyperinflation. Loans and other debt interest rates will go up. It’s important to consider this and it’s better to clear them if you can, or perhaps, you could combine them into a single loan at a fixed rate over a longer term. It really depends on the business’s situation.
A review of the income and operation costs is also important. But generally, there is a chance to be more flexible here, and cost-cutting measures may need to be planned to keep the business operational. The closure of a business doesn’t help anyone!
On a more positive note, many businesses can and do survive hyperinflation. Knowing how to prepare and adapt your business to inflationary trends can be helpfully beneficial. Smart choices can help a business to not only weather inflation but to come through it stronger. Speak to one of our Quantuma Direct advisors and they can help plan/implement a strategy to manage business finances.
