Current Financial Management for the Small Business

To understand the current economy one must understand the functions of inflation and deflation. An item purchased today will always be more expensive tomorrow or the day after. In order for purchasing power to remain consistent with inflation wages rise just as rapidly.  Getting price increases to offset inflation in costs has been the typical problem—but not lately. Price increases are rare and price decreases are common. (Disinflation) As a business owner you must realize that competitors will be lowering their prices on good to make a sale. Your job as a business owner must be to arrest the decline of prices and to reduce costs to match the decline. If costs do not decrease at equal rate to decline of price the deficiency will be seen through profitability. Inflation Most people understand inflation. It occurs when more money is created than there is tangible value to support it. With the massive government spending surge and money supply growth in the past year or two, inflation should be a concern. Right now, it isn’t, which is surprising. The reason that inflation remains tamed is that there is too much idle capacity, chasing an too little demand. When the rate of inflation keeps dropping, as it has lately, that is called disinflation. It is troubling at times, but also manageable if costs can be reduced. Disinflation is not to be confused with deflation. Deflation Deflation is a different and more dangerous phenomenon than disinflation. It has rarely been seen (except in …Continue Reading