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GREATER LEHIGH VALLEY CHAMBER BLOG

Is Your Small Business Accounting for Inflation?

11/30/2021

29 Comments

 
By: Thomas Jordan, Central Pennsylvania Market President, Univest Bank
​and Trust Co
​Inflation is top-of-mind for many Americans, including business owners. Small or privately-held businesses currently make up more than 99% of companies in the U.S. and inflation can have a large impact on these organizations if not properly planned for and addressed. Getting ahead of inflation is even more challenging for smaller businesses because they don’t usually have a dedicated, in-house finance and accounting team constantly reviewing financial statements, monitoring expenses and calculating profitability.

When inflation occurs, each dollar spent doesn’t go as far as it did before which ultimately decreases buying power. For example, consider a construction business. We’ve seen lumber, steel and copper all skyrocket in price during the last 18 months. As the business is forced to pay more for materials, its margins are decreased, and profitability is negatively impacted.

With many small businesses only “closing the books” quarterly, they could be three to four months behind needing to increase pricing to account for inflation. Unknowingly, a business could be selling at a loss. Business could be booming, but if prices are not adjusted accordingly, financial hardships could still be on the horizon. Small business owners must be vigilant about working with a team of professionals including their accountant and banker to ensure they are aware of inflation’s impact on their margins.

Another reason inflation can be especially challenging for small businesses is because they operate on lower margins than their big-box counterparts. Many times, these businesses are financed by the owner’s savings. This puts small businesses owners at a significant financial risk. Small business owners often have a majority of their financial security riding on the success of their company so it’s imperative they take steps to ride out periods of higher inflation.

Some of the inflation we are currently facing is expected to be transitory. We have an imbalance of supply and demand largely due to supply chain complications caused by the pandemic. This should temper over time. While the Federal Reserve (Fed) expects increased inflation for the remainder of 2021, it sees inflation diminishing into 2022.

While some inflation will dissipate, businesses need to consider what increased expenses are going to stick. One that stands out is wage inflation. As businesses struggle to fill open positions, many are offering increased compensation and improved benefits to attract and retain talent. As inflation settles and some pricing returns to normal, the increased payroll and benefits costs will not. Businesses need to consider how they will carry these increased expenses for the long term.

Inflation poses significant challenges, especially to smaller businesses. It is vital to work with a team of professionals to help your business navigate inflation and create a plan for long-term success and stability. To learn more about how the Univest Commercial Banking team can assist, contact us at 877-723-5571.

Univest Bank and Trust Co. is Member FDIC, SBA Preferred and an Equal Opportunity Lender.
29 Comments
Braden Bills link
4/6/2023 09:57:23 am

My friend wants to make sure that he gets his business financed correctly. It makes sense that he might want to get an accountant to help out with that kind of thing would be beneficial. That seems like a good way to be better prepared for inflation.

Reply
Vancouver Small Business Accountant link
4/17/2023 08:39:53 am

The Lehigh Valley Chamber of Commerce has published a blog article with advice for small businesses on how to deal with inflation. In this article, the author explains inflation, discusses its effects on small businesses, and offers advice on how to lessen those effects. Small business owners who are curious about the effects of inflation on their company can benefit from reading the post.

Reply
Business Magazine link
5/2/2023 07:28:54 am

Hi there! You have discussed an interesting topic on business accounting. Thank you so much for writing. I truly appreciate you sharing with us. I’ve learned something good here. Thank you.

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5/17/2023 04:00:12 am

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6/3/2023 03:14:04 am

The significance of inflation accounting for small enterprises is discussed in this blog post. Inflation's possible effect on financial statements is discussed, and strategies for dealing with inflationary pressures are provided. Readers clearly care about this issue, as evidenced by the comments, where some of them discuss the effects of inflation on their own enterprises. Inflation is an issue that is often overlooked by small business owners, but this article serves as a helpful reminder to include it in financial planning and decision making.

Reply
Jobin Reddy link
6/18/2023 11:46:04 pm

It's important for small businesses to stay vigilant and account for inflation. Being aware of how inflation impacts costs and pricing strategies can help businesses make informed decisions and maintain profitability. Thank you for highlighting this crucial aspect and providing some practical tips. Keep up the good work!

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8/24/2023 05:47:27 am

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I'm impressed by the thoroughness of your content. It covers all aspects of the topic.

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12/28/2023 12:32:47 am

It’s hard to get this stuff these days.

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2/15/2024 08:22:52 pm

Good Share. Additional Resources for Small Business Can be found @https://www.simplifyingcalculation.com

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Ellison Williams @Northstar Financial Advisors link
6/14/2024 03:02:19 am

Your excellent blog on how to deal with inflation's impact on small businesses is really helpful and practical. It is clear that you understand the issues that smaller businesses encounter. I look forward to reading more of your useful blogs in the future!

Reply
I Luv Aussie link
8/1/2024 08:45:09 am

Great insights on the importance of accounting for inflation in small business finances! It's crucial for business owners to stay proactive and adjust their strategies to mitigate the impact of rising costs. Implementing inflation adjustments in budgeting and pricing can really make a difference in maintaining profitability and financial stability. Thanks for shedding light on this often overlooked aspect of business management!

Reply
Chinese Restaurant in Gold Coast link
9/24/2024 03:52:51 am

Excellent article! Addressing inflation in small business accounting is vital for financial health. Your insights and practical tips will undoubtedly help entrepreneurs navigate these challenges effectively. Thank you for sharing!

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Sidney De Queiroz Pedrosa link
10/24/2024 11:48:02 am

This article provides valuable insights into the often-overlooked aspect of inflation in small business accounting. Understanding its impact is crucial for maintaining profitability and making informed financial decisions. Thank you for shedding light on this important topic!

Reply
Beatriz Barata link
10/26/2024 09:23:02 am

Great read! It highlights the importance of factoring in inflation when managing small business finances. Understanding how inflation impacts costs and pricing strategies can make a significant difference in maintaining profitability.

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12/25/2024 11:50:34 pm

Great reminder for small businesses to stay ahead of inflation! Adjusting your pricing and budgeting strategies can ensure long-term financial stability.

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12/31/2024 03:47:35 am

Great insights! It's often overlooked, but recognizing its impact on pricing, expenses, and profit margins is key for sustainability. Your tips provide a solid framework for small businesses to stay resilient in today's fluctuating economic climate. Well done!

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Business Coach link
1/4/2025 07:55:17 am

This article emphasizes the importance of accounting for inflation in your small business finances. It offers valuable insights on how to adjust pricing and manage costs effectively to stay profitable.



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Structure Advice link
4/17/2025 06:11:29 am

This article provides valuable insights into the challenges small businesses face during inflationary periods. The emphasis on adjusting pricing strategies and closely monitoring expenses is crucial for maintaining profitability. It's a timely reminder for business owners to stay proactive and seek professional guidance to navigate these economic pressures effectively.​

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4/27/2025 06:40:57 am

Small Business Accounting for Inflation is good, and it provides us with the best solutions that we are required to. When I used these updates, I saw how the people were searching for the best options to use.

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