September 9, 2022

Understanding the Effects of Inflation on Your Small Business

The recent news cycle has been dominated by inflation and its effects on the average Canadian. Small businesses are looking at a difficult future where rising costs are threatening to close their doors. In May of 2022, a survey completed by Alignable (a professional networking site) showed that 51% of small business owners were concerned that inflation will cause them to shut down in the next six months.


While it’s true that inflation will affect regular Canadians, it’s no doubt that businesses should look into what inflation is and how it could affect their operations.

An Introduction to Inflation

Inflation is the rising cost of good and services over a period of time. What you can buy with your dollars becomes less and less as a result, decreasing overall buying power that the consumer may hold.

Inflation is often caused by several main factors:

  1. Rising Wages
  2. Cost-Push Inflation
  3. Deman-Pull inflation
  4. Increased money supply
  5. Devaluation
  6. Government Policies

Rising Wages:

When wages increase, it often results in increased costs for the business. Having to pay staff more while maintaining profit margins is a difficult balancing act. Small businesses who can’t afford this increased cost will look towards increasing product prices to accommodate this rise.


Cost-Push Inflation:

When labour and material costs rise, so does the price of the product.


Demand-Pull Inflation:

When demand for a good or service outweighs supply, prices increase to maintain profits. This may or may not equalize once supply meets demand.


Increased Money Supply:

If there is simply too much money in circulation and not enough product to go around, prices will rise. The value of a scarce product is reflected in this inflation factor.



When a country experiences a recession or a devaluation of its currency, it is likely going to experience inflation. Lower currency value means higher costs of importing goods. This cost is then pushed onto the consumer.


Government Policies:

Tax subsidies, building regulations, and rent regulations re examples of government policies that can affect Cost-Push and Demand-Pull inflation.


With these factors in mind, it should be noted that inflation is considered a normal characteristic of the economy. Under normal circumstances, most people can plan and account for rising inflation rates every year. From rapid globalization to automated production, there are many external factors that cause inflation to climb year after year.


However, the recent rising inflation rates are not ordinary. In 2022 alone, we’ve seen the fastest rise in inflation in the last 40 years. This has been an unfortunate side effect of several unprecedented events in the last couple of years, most notably the COVID-19 pandemic.

Supply chains have been disrupted, Good production has slowed to a crawl, and labour market turmoil are all contributors to this record breaking rise in inflation.


What Does This Mean For My Small Business?

Small businesses are more likely to feel the sting of rising inflation compared to their larger counterparts. Reduced revenue, increased operational costs, and increased rent will make it difficult for small businesses to operate at a normal pace. Small businesses are also going to find it difficult to balance customer satisfaction with an increased cost of operation and maintenance.


Small businesses will also have to deal with increased wages during periods of rapid inflation. Staff are either going to demand higher wages to meet the rising cost of living, or they’ll simply leave to find greener pastures elsewhere. Small businesses will either adapt to this and see lower profits or will be forced to shut down due to the inability to keep up with labour demands.


It should be noted that it’s not all doom and gloom for small businesses. The affects of inflation are going to depend on the industry that a small business belongs to. During the COVID-19 pandemic, hotels, restaurants, and salons were among the most affected. Even after restrictions have been lifted and life has returned to some semblance of normalcy, spending habits have changed. These industries have experienced a difficult rebound period compared to others.

What Can I Do?

As a small business, you should consider several measures to help combat the affects of inflation.

  1. Reduce Expenses

Instead of layoffs that will affect productivity or increased prices that will drive away your customers, you should consider cutting expenses in other areas of your business. Learning to use less electricity and implementing new environmentally friendly policies can help lower your monthly bills and help your business thrive during this difficult time.


  1. Audit Billing Errors

Proper auditing can help your business save money by finding errors or by identifying unessential costs. We recommend asking a professional third-party company to help audit your bills. Watchdog Management Services is one such company! We can identify areas of your business that have the potential to save you money that you never would have guessed!


  1. Audit Merchant Service Rates

Much like your bills, your merchant service rates can often go under the radar. By checking if you’re paying the right rates for your services, you can potentially detect areas where your business can save on costs. Watchdog Management Services can help find the best service rates across multiple industries, so be sure to reach out!


  1. Diversify Your Supply Chain

By building a diverse supply chain, you can proactively address rising inflation. In fact, having a contingency plan in case suppliers are unable to fulfill orders can help your business survive difficult periods. You don’t want to be caught in a supply chain issue without some kind of back-up plan, especially if your business relies on a constant flow of goods.


We’re Here For You!

Watchdog Management Services is here to help! While historic inflation is taking hold of Canada, we are prepared to help businesses combat it. If you are interested in learning more about our services and how they can help your business during this difficult time, be sure to get in touch today!

In this article:
Share on social media:

Looking For Savings for Your Business?

Connect with our team of industry experts and ask for your FREE review today!