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\u00a0By Pat Soldano<\/em><\/strong><\/p>\n <\/p>\n As the cost of goods and wages rise, the country\u2019s biggest private employer segment \u2014 family-owned businesses \u2014 is hoping for the medicine to cure cost-wary customers, staff layoffs and the inevitable, painful downward business spiral that comes with inflation.<\/p>\n One year ago, inflation was a blip on family business monitors. According to 2021 research by Family Enterprise USA, just 11% of family businesses believed inflation was a risk. And, in 2020, inflation registered a mere 2% of worry among family business owners.<\/p>\n How fast things have changed. Today, 50% of voters in the midterm elections said inflation (or the economy) influenced their vote. Simply put, inflation is top of mind. When our next Family Enterprise USA survey is finalized in February 2023, it will be a pretty good bet that inflation will rank near the top of worries facing family businesses.<\/p>\n Inflation affects everything from shelter costs to gas prices to daily purchase decisions to mortgage payments. In 2021, some economists and the Federal Reserve said inflation was \u201ctransitory\u201d. They now believe 8% per-year inflation will be with us for a year or more. But economist predictions have been faulty at best. The general sentiment among family business executives is \u201cBuckle up.\u201d<\/p>\n So, how do family businesses prepare for this new burden?<\/p>\n Family businesses represent 59% of the America\u2019s private workforce, or some 83.3 million U.S. jobs. Family businesses in America consist of 23.7% manufacturing, 10.4% construction\/facilities and 9.75% in real estate, according to early-2022 family business research conducted by Family Enterprise USA.<\/p>\n As part of my work, I speak with multigenerational family business executives every day. What they tell me does not paint a pretty picture.<\/p>\n \u201cInflation is bad. It\u2019s bad for our customers and bad for our business,\u201d says Steve Wells, co-chief executive officer at family-run American Food & Vending in Woburn, Mass. \u201cThink about it: If all we do is raise prices by the 8% inflation rate, they will just stay even and our customer pays for that increase for the same exact product. The result is, as inflation takes off, we have an upset customer and our family company does not make one penny more,\u201d said Wells.<\/p>\n Wells believes a far worse result is customers will slow and ultimately stop spending on discretionary items, like the items his company sells: coffee and lunch-at-work food products.<\/p>\n \u201cInflationary impact on the economy is tremendously negative and, in the end, everyone loses,\u201d says Wells.<\/p>\n As Wells outlines, one simple proactive option for family businesses (or any business) is to raise prices with inflation. But with a twist.<\/p>\n The strategy goes like this: Raise prices with inflation, but, if it cools, offer discounts. This approach, the thinking goes, maintains margins and makes it easier to be flexible in navigating inflation\u2019s ups and downs.<\/p>\n Of course, this remedy doesn\u2019t stop the underlying issue of controlling inflation. According to the most recent U.S. Bureau of Labor Statistics\u2019 Consumer Price Index data, over the last year, all items indexed increased 8.% before seasonal adjustment. Increases in shelter, food and medical care were the biggest contributors to the increase.<\/p>\n \u201cFamily businesses have to know how to change with the economy,\u201d says Russ Sullivan, Capitol Hill tax expert and partner at law firm Brownstein Hyatt Farber Schreck. \u201cThe midterms showed us things are changing fast and there are some critical economic and tax policies family businesses need to face right now. Do you just pass along higher costs? What effect do these short-term pricing strategies have on the business long-term? And what about leaving a strong business for the next generation?\u201d<\/p>\n Will the Federal Reserve tame inflation in 2023? It\u2019s not like The Fed hasn\u2019t blundered in the past or had to make some hard calls, such as the Paul Volker moves in the early 1980s. There was also 2009 and The Great Recession, which was fueled by the collapse of complex global mortgage securities the Fed didn\u2019t see coming. And just last year, there was the misreading of labor shortages, logistics jam-ups and the long-term effects of the gusher of free government pandemic money?<\/p>\n The Fed\u2019s slow-walking policy errors, critics say, paved the way to make 2022 the worst year in the financial markets since the 1930s. To be fair, a series of unforeseen events sparked by the global COVID pandemic, supply chain disruptions, emergency government stimulus payments and the war in Ukraine did not help.<\/p>\n The final chapter in putting the inflation genie back in the bottle is a long way from being written, but there is universal agreement that the next year will be pivotal for The Fed in threading the needle between killing the economy and cooling off inflation rates to around 2% per year.<\/p>\n Like all businesses, family businesses want to source materials at the lowest possible cost. This can create shortages of low-cost raw materials. This, in turn, leads to production delays, declines in revenue and price-hike temptations, which again all leads to inflation.<\/p>\n \u201cThe dairy industry and, in particular, the butter market have seen unprecedented price increases,\u201d says Mark Peters, chief executive officer of multigenerational family-owned Butterball Farms in Grand Rapids, Mich.<\/p>\n It\u2019s true: The increased cost of butter on retail shelves has made headlines and even spurred jokes from late-night comedians.<\/p>\n My concern is how our government is going to respond to it,\u201d Peters says. \u201cWhen you stimulate the demand side of the economic equation and simultaneously choke the supply side, you end up with massive system disruptions that will take years to clear out. We\u2019ve invested in additional capacity and one concern is that with higher prices the market demand will be lower than we forecasted, which means our new capacity could be unused. We have to eat those costs, maybe increase prices, and wait and see.\u201d<\/p>\n When things get too expensive, Peters offers, consumers stop buying or they wait. This downward spiral adds fuel to the machinery that makes the situation worse and longer-term. And as Peters has found out, it makes it harder for businesses to invest in themselves with confidence.<\/p>\n In the short term, inflation can lead to increased wages for employees as they seek to maintain their buying power while prices rise. But over the long haul, \u00a0this puts pressure on businesses and leads to those same higher prices, as well as a predictable decline in sales and profitability. This cycle is particularly hurtful for some industries, like healthcare, hospitality and food, where consumers can easily stop spending on health-related items, vacations, dining out.<\/p>\n The cure for inflation is not easy, but family businesses are on the front lines of taming it.<\/p>\n What\u2019s important is to not sit idly by. Make the right decisions long-term for your business, employees and customers. Watch your government leaders carefully. Let them know you are watching, and let Congress \u2014 and the new Family Business Congressional Caucus \u2014 know what you like and don\u2019t like about their inflation policies.<\/p>\n If we don\u2019t let our voices be heard, inflation\u2019s effect on family businesses will be permanent, and that\u2019s not a good prognosis for our economy.<\/p>\n [\/et_pb_text][et_pb_button button_url=”https:\/\/familyenterpriseusa.com\/2022-annual-family-business-survey\/” button_text=”Have Your Voice Heard in Congress. Please Take Action Today!!!” button_alignment=”center” disabled_on=”on|on|on” admin_label=”Call to Action Button” _builder_version=”4.16″ _module_preset=”default” custom_button=”on” disabled=”on” global_colors_info=”{}”][\/et_pb_button][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_divider disabled_on=”off|off|off” _builder_version=”4.17.6″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_divider][et_pb_text admin_label=”Become a member text” _builder_version=”4.18.0″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” link_option_url=”https:\/\/familyenterpriseusa.com\/donate-2\/” global_module=”5822″ global_colors_info=”{}”]<\/p>\n As we prepare for what promises to be a pivotal year for America, we’re asking you to consider becoming a member.<\/p>\n The need for fact-based reporting of issues important to multi generational businesses and protecting a lifetime of savings has never been greater. Now more than ever, multi generational businesses and family businesses are under fire. That’s why Family Enterprise USA is passionately working to increase the awareness of issues important to generationally-owned family businesses built on hard work, while continuing to strengthen our presence on Capitol Hill. The issues we fight for or against with Congress in Washington DC are high Income Tax Rates, possible elimination of Valuation Discounts, increase in Capital Gains Tax, enactment of a Wealth Tax, and the continued burden of the Estate Tax (death tax), and with the possible elimination of Step up in Basis.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”FEUSA Statement” _builder_version=”4.17.6″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” link_option_url=”https:\/\/familyenterpriseusa.com\/donate-2\/” global_module=”5910″ saved_tabs=”all” global_colors_info=”{}”]<\/p>\n\u00a0<\/h3>\n
Over the past two years, the virus on everyone\u2019s mind was COVID. Today, the virus is inflation.<\/h3>\n
Inflation Fighting Strategies<\/strong><\/h4>\n
Balancing Costs and Demand<\/strong><\/h4>\n
We hope you’ve enjoyed this article. While you’re here, we have a small favor to ask…<\/em><\/h4>\n
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