What Trumpflation Means for Small Business Owners
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Regardless of political leanings, entrepreneurs can't afford to ignore the president's agenda. His own plans will likely affect the plans of small businesses and startups in one way or another, and soon.
President Trump's first 100 days were a veritable flurry as the new head of state worked to make good on campaign promises as quickly as possible. While the results of his efforts haven't fully come to fruition in many instances, change rarely happens overnight — especially when it comes to U.S. government policies. And with enough persistence, a stream can eventually cut through a mountainside.
While the president has proposed several sweeping policy changes, for the purposes of this post we'll focus on those that could lead to what some analysts have dubbed "Trumpflation," zeroing in on how businesses can position themselves for success if Trumpflation should occur.
Trumpflation According to Analysts
While on his campaign trail, Trump proposed pumping $1 trillion into the economy toward infrastructure, and he hasn't forgotten. In late March, U.S. Transportation Secretary Elaine Cho announced the administration's plans to unveil the specifics of the initiative before the end of 2017.
History tells us that when large sums of money are introduced into the economy, inflation follows. Trump's proposed policies have consequently caused many financial analysts to warn against "Trumpflation" ahead. Depending on who you ask, Trumpflation will either be a blip on the radar or a devastating M8 on the Richter scale.
Time will tell — and those who err on the side of over preparation will, at the very least, not lose nearly as much sleep as those who lie awake wondering how it will all pan out.
How Trumpflation Could Affect Small Businesses
Trumpflation may have a fancy name, but its effects are basic economics. Inflation generated by any circumstance creates the same vicious cycle of impact for businesses:
The dollar becomes less valuable, causing goods to become more expensive.
Because goods become more expensive, the cost to produce products can rise significantly.
Businesses raise prices to cut back on profit loss due to the increase in production costs.
Customers stop buying as much of the product as a result of the price increase.
Businesses raise prices again to make up for revenue lost with slower product movement.
Businesses lose more customers after rolling out the higher prices.
The cycle continues until the dollar starts to regain value, or the business goes bankrupt — whichever scenario occurs first. Unfortunately, small businesses are most likely on the latter side of the coin. This is because they lack the massive cash reserves many large businesses have stored away to weather temporary circumstances like inflation. But not to worry. There are ways to prepare a small business for this type of environment before bankruptcy becomes the only option.
Truncate Trumpflation's Effects on Your Business with the Right Preparation
To mitigate your business's risk in case of Trumpflation, do what the big corporations do and plan for a rainy day — then do what they can't do and seek out capital from investors who don't want to sink their dollars into stocks and bonds when inflation is on the rise.
For that first step, take a good hard look at the numbers as they currently stand. Review all operation costs. Are you running as lean as you could be? If not, is the extra fat truly necessary for comfort — or could it be left on the cutting table? Look at all sources of revenue. Is that the widest audience you can reach? Have you considered all avenues for pushing product? Are you missing low-hanging fruit? After you've run your numbers, take the extra capital you've found and put it in an account to be used in case of a Trumpflation emergency. If you put away enough, then you can keep your products' price down while your competitors are raising theirs, ultimately cornering the market in a time when you might otherwise be edged out.
And for the second step, it's a little-known fact that in times of inflation investors don't just steer toward real estate and commodities — they also look at putting their dollars into venture capital. These three arenas offer an alternative to the traditional stock and bond markets, which are less desirable while the dollar's value diminishes. Take advantage of this increased interest when it arises and for added financial security.
Everything's Changing — Same as Always
Maintaining profitability in a changing economic climate is the name of the game in the world of business. That's because, in reality, the economic climate is constantly evolving. To succeed as a business owner, it's essential to be aware of that fact, and to adapt when (not if) the time comes.
Written by: Yuen Yung, Founders Firm Advisor
Yuen Yung serves as CEO of Casoro Capital, a private equity firm which creates discretionary funds for investing in multifamily properties and developments. Building on the expertise of The PPA Group, a renowned commercial investment and servicing corporation, Casoro leverages extensive local market knowledge and vertically integrated financial and operational expertise to enhance value for investors and residents. With Yuen at the helm of Casoro Capital, and in partnership with The PPA Group, the companies have successfully achieved over $600 million in multifamily transactions. Yuen holds a Bachelor of Business Administration from the McCombs School of Business at The University of Texas at Austin. He is also a graduate of MIT’s Entrepreneurship Masters Program and has professional certifications as a Chartered Mutual Fund Counselor (CMFC®) and Board Certified Financial Planner (CFP®).