Hyperinflation Unlikely, But Caution Advised, Especially SMBs
Inflation, virtually unknown in the U.S. for decades, is being viewed as a real post-pandemic possibility. MLA Companies suggest that businesses, especially small and medium-sized businesses, adjust their financial strategies to be ready.
DAYTON, Ohio, June 7, 2021 /PRNewswire-PRWeb/ -- In a recent column for Bloomberg, the former president of the Federal Reserve Bank of New York warned of the danger of significant monetary inflation, something not seen in the United States for nearly 40 years.(1) Business strategy consultants agree, if not on the diagnosis(2), then on the need for caution. "While a return to hyperinflation is extremely unlikely," says MLA Companies CEO Seth Morgan, "the current economy is volatile, as witnessed by post-pandemic resource shifts and price fluctuations.(3) Businesses—especially small to medium-sized businesses—should be preparing themselves to respond to change in the financial weather."
Hyperinflation, notes Morgan, has been described as the defining macroeconomic event of the second half of the twentieth century. During the nearly two decades it lasted, there occurred four economic recessions, two severe energy shortages, and the unprecedented peacetime implementation of wage and price controls.(4) While hyperinflation has not been seen in the U.S. since 1982, it has appeared in numerous other countries; in recent years, it has destroyed the economies of Zimbabwe, Venezuela, and Argentina.(1)
In the U.S., even though the current small inflation appears to be temporary, aggressive government monetary policies and the unprecedented nature of the COVID-19 pandemic are leading asset managers to shift allocations to allow for the probability of more persistent inflation.(5)
Businesses, says Morgan, are shifting allocations for other reasons as well. A rapidly growing company in the food-kit service market, for example, recently opted to significantly reduce its marketing budget so as to forego a new round of investor funding and finance the development of its production infrastructure out of the company's self-generated revenues.(6)
While the details of preparing for possible inflation and asset reallocation vary from company to company, there are, notes Morgan, some areas every firm needs to concentrate on:
- Cash reserves. In an inflationary environment, holding excess cash is not ideal, however, no cash reserves means that you have limited flexibility to respond to the volatility created by inflation. As a result, you need not only to plan to have enough cash on hand, but you also need to factor in the cost of access to money.
- Early warning systems and control of financial reporting. Taking the time and effort to ensure that financial reporting and reported results are consistent throughout the organization, timely presented, and highlighting the right information is critical in a changing environment. However, one must also identify the key metrics to watch as lead indicators, creating an early warning system for possible changes in macro and micro conditions.
- Vendor relationships. Who owes whom what, and when is it due? This is a vital question not only in regard to vendors, but also to customers. If a major client suddenly goes from 30-day pay to 60- or 90-day pay, it radically alters the value of your firm's receivables. Further, identifying the key vendor and customer relationships to the organization and initiating policies and communication that allow increased visibility is key.
In other words, be prepared. Helping SMBs recognize change and organize themselves to deal with it is, says Morgan, essentially what MLA Companies does. "We see small business," he says, "as the place that figures it out and gets it done. We believe in keeping the owner as close as possible to what he or she is passionate about and making sure the resources are there to help them fulfill that vision."
About MLA Companies
MLA Companies is not a CPA firm that also does consulting. They are consultants whose customized, value-driven approach offers processes and services that align to client's needs and future growth. Founded in 2006 by CEO Seth Morgan, they are financial experts positioned to understand a client and their business—to protect, guide, and empower. Clients who invest in building relationships with MLA Companies know that their purpose will not change but their service offerings can grow as the business grows. At MLA Companies the discussion with a client is centered around purpose and growth first—then finance and services second. Visit https://mlacompanies.com/
1. Logue, Ann. "Inflation is on the way for 2021—Here's What That Means for You," Yahoo finance, 8 Dec. 2020, finance.yahoo.com/news/inflation-way-2021-means-170015175.html
2. Calhoun, George. "The Inflation Scare Doesn't Match Reality," Forbes, 1 May 2021, forbes.com/sites/georgecalhoun/2021/05/01/the-inflation-scare-doesnt-match-reality/?sh=5c3e26e21049
3. Goodman, Peter S. and Chokshi, Niraj, "How the World Ran Out of Everything," New York Times, 1 June 2021, nytimes.com/2021/06/01/business/coronavirus-global-shortages.html
4. Bryan, Michael. "The Great Inflation" Federal Reserve History, federalreservehistory.org/essays/great-inflation
5. Idzelis, Christine. Investors see 'significant overshoot' of Fed's inflation target for first time in years, says BofA" Marketwatch, 5 May, 2021, marketwatch.com/story/investors-see-risk-of-significant-overshoot-of-feds-inflation-target-for-first-time-in-years-says-bofa-11620246032
6. Johnston, Peter. "What's in store for grocery and meal delivery services," National Retail Federation, nrf.com/blog/whats-store-grocery-and-meal-delivery-services
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Daniel Mutter, JOTO PR Disruptors(TM), 727-777-4621, [email protected]
SOURCE MLA Companies
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