From gas to groceries, many Canadians are experiencing sticker shock as the cost of goods and services continues to climb. Statistics Canada reports that the annual pace of inflation rose 5.1% on a year-over-year basis in January 2022—the highest level in 30 years.
Rising inflation is top of mind for business owners, too, and many are turning to price hikes in response to their own rising costs. They also expect inflation will continue to stay high for the foreseeable future. In the Bank of Canada’s latest business outlook survey, two-thirds of firms expect inflation to be above 3% over the next two years.
What’s driving the trend?
The Bank of Canada report points to several culprits driving higher inflation, including supply chain disruptions, labour shortages, the rising cost of gas and the impact of fiscal policies. The one-two punch of supply chain bottlenecks and strong consumer demand is expected to put upward pressure on prices over the next year.
How can you protect against inflation and higher costs in 2022?
While there are no easy solutions to coping with today’s inflationary environment, business owners can be proactive against the rising costs of doing business. One way to do so is through smart savings strategies. By enhancing your savings now, you’ll be better prepared to weather inflation and other headwinds in 2022.
Here are five reasons to get proactive about your business savings:
- Stay in control. Building up savings is a great way to stay in control of your business, particularly in challenging times. When costs go up because of supply chain disruptions, for example, you may need to tap these funds until the situation recovers.
- Reinvest to grow. Setting aside cash gives you more opportunity to invest back in your business and help you avoid paying interest on loans when making major purchases. The Bank of Canada survey points to an interesting spending trend: most businesses said they plan to spend more on machinery and equipment compared to one year ago. Some businesses are also proceeding with investments that had been delayed by the pandemic to equip themselves in the post-pandemic world.
- Increase cash flow. By putting money in a business savings account, you can earn interest and boost your cash flow for the long term. This can help you grow your business and plan for future opportunities, while keeping your cash completely liquid and easily accessible.
- Be better prepared. As part of your savings strategy, it’s important to build an emergency fund for unforeseen events. Having this safety net will bring you peace of mind, knowing you’ll be equipped if something goes awry. If there’s anything the pandemic taught us, it’s to plan for the unexpected.
- Be diligent. Do timely reviews of your business contracts so profit margins are maintained. For example, say you’re a home builder and you have a fixed contract, but the cost of the project goes up. Who is responsible for covering those costs? By writing in a clause such as, “if the cost goes up, the client would be responsible for that increase”, that simple clause would provide more protection for you as a business owner.
Beyond putting cash aside, there are other ways to cope with inflation and protect against the rising costs of doing business. Some steps are:
- cutting expenses by downsizing your office or cancelling products and services you longer need
- negotiating supplier agreements well in advance and locking in a lower cost
- stocking up on supplies at current prices if space provides
The bottom line
Inflation worries are here to stay for the short term, but growing your savings will leave you better positioned to weather the storm. Ask one of our business experts about growing your savings — and your business — with a sound savings strategy.