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A View of the Economic Climate and How It Impacts Your Business

A View of the Economic Climate and How It Impacts Your Business

In Part I of SVA's Economic Impact Webinar Series, SVA's experts discussed the economic challenges facing businesses and shared their insights on what business owners should watch and plan for in the coming months.

Evaluating your perspective on how you look at your financial data is imperative. Reviewing your revenue goals and looking deeper into the numbers will help you understand what drives your actual net-revenue increases.

Historical Data Challenges: Balancing Revenue and Expense Increases

Using historical data has been a major part of determining future goals, projections, and budgets. That has changed significantly, as historical data isn't as relevant right now. The economic impact of supply chain issues and rising costs means that historical data isn't a good benchmark for future planning.

It's a different environment, and while reviewing historical data is good, it isn't as reliable of a benchmark for the future as it has been in the past. Hopefully, once things stabilize, historical data will again be more reliable for future planning.

Businesses must be able to react quickly to fluctuations in costs and pricing. Agility is the key. Move away from printed catalogs, menus, etc., so you can easily adjust prices.

Costs and wages are constantly changing, and your pricing needs to reflect that. Seasonal businesses are accustomed to some of that volatility, but it's never been as drastic as cost variables are now.

Don't wait for a dip in your financials before you adjust. At that point it is too late and you are already behind in revenue. Projections are imperative. Based on current expenses, project out your sales and expenses three, six, and twelve months. Review them often and adjust as needed.

Supply Chain Impacts and Inventory Level Planning: Forecasting with an Eye to Product Demand Shifts

Supply and demand are significantly affecting businesses right now. Supplies are limited, but demands are high.

The list of what is affecting supply chains is long and could include any or all of these factors:

  • Rising gas prices
  • Geo-political uncertainty
  • Extreme weather (Droughts, hurricanes, wildfires)
  • Recession concerns

The reach of what can impact your business is vast.

In the past, the recommendation was to limit suppliers so you could take advantage of rebates and bulk pricing. Where you got the supplies/inventory you needed wasn't as important as the price you were paying. That has changed.

You can't risk not being able to get parts or inventory if your leading supplier cannot deliver it. Look for alternative suppliers so you don't get caught not being able to provide for your customer orders. Review where your suppliers are located. Maybe local is better to prevent challenges in delivery.

If you have an inventory shortage, can you make your product with alternative parts/goods? Think outside the box. Maybe you could acquire the company that supplies a significant part of your product. Perhaps modifications can be made to your offerings to accommodate varying raw materials.

What You Need To Do Now:

  • Have software to give you good visibility into your inventory
  • Automate reporting to provide you with good indicators of low stock
  • Know what you need when you need it
  • Plan by forecasting your sales
  • Control costs on product changes or replacements as much as possible
  • If you have the ability, add inventory that you know you will sell, with an eye to the cost fluctuations that might occur
  • Balance the risk of buying supplies at a higher cost with holding inventory costs and future price decreases

Labor Challenges: Bonus Plans vs. Higher Hourly Wages

Key employees are getting a premium wage, but is that sustainable when the economy changes?

Once raises are given, you can't go back and reduce wages, so be strategic when compensating employees. Having the right people on your team is imperative, but company culture is also essential.

It is not always compensation that drives an individual to look for another position and leave your company. Be transparent with your employees. Share data and make them feel like they are part of the process.

People stay at a company because they like coworkers and owners. It is not always about money.

Some Things to Consider:

  • Reward employees with bonuses tied to the performance of the individual, department, group, or company. This holds people accountable, so be transparent about why the bonus is being offered. Tell them what they need to do to earn a bonus and ensure the dollar amount is high enough to make an impact. Low bonuses are not as meaningful or impactful.
  • Find non-financial ways to incentivize including flexible schedules, small perks, or modified benefits.
  • Hiring and retention bonuses are more prominent than in the past. Be creative in your recruiting efforts.
  • Be cautious with stay interviews. If you aren't prepared to act on what people say, this can negatively affect morale. It is better to not have the information than to have it and not act on it. Get the pulse on your staff using evaluations and reviews.

Industry Impacts


For contractors, be sure your future contracts include contingencies or escalation clauses. You can't rely on what costs will be nine months from now.


If you are in the hospitality industry, menu prices should be reviewed often and adjusted accordingly.

Manufacturing and Distribution

Monitoring your inventory and adjusting pricing can be complicated. If you raise prices based on your current inventory costs and have two months of stock left, your gross profit margins will look higher until that inventory is gone and needs to be replaced with a higher-priced stock. Then your gross profit margin will be reduced. While price increases are difficult for many business owners, you must maintain a good profit margin year-round.

Service Industries

The labor shortage and higher wage demands are impacting service businesses' pricing, requiring fee adjustments. For businesses who charge by the hour, based on services provided, price increases will be mandated by increased employee wages.

Veterinary Services

SVA's 2022/2023 Salary and Benefits Survey results showed almost every veterinary practice that responded to the survey raised their fees at least once in the past year. Aligning your prices to increased costs means you need to be flexible with your service pricing.

Communicate. Communicate. Communicate.

Most businesses are facing the same challenges you are. Communicate with your staff and your clients, so everyone knows the situation.

If you can't meet a customer's order, tell them upfront. Don't overpromise and underdeliver. It's hard to recover when a customer has a negative experience.

However, if you explain the issues, your customer will understand you are doing your best to provide the required service. You may still lose some orders, but it won't permanently affect your client's view of your business.

Be honest with your staff, so they know what to tell your customers. Informed employees won't overpromise and will help make your customers comfortable with what you can deliver and when.

Good customer service has never been as vital as it is right now.

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Biz Tip Topic Expert: Nicole Gralapp, CPA, CExP™

Nicole Gralapp, CPA, CExP™

Nicole is a Principal at SVA Certified Public Accountants working primarily with closely-held businesses and individual clients. Nicole performs a variety of tax, assurance and business consulting functions. She provides clients with technical expertise in areas such as tax planning, financial reporting, financial projections, budgeting, financial and estate planning and review of internal controls. Her experience in the hospitality, restaurant, construction and professional services industries gives her the ability to consult with clients in a variety of areas.

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