Inflation rates have been reported anywhere from 5% up into the 20’s. No matter what the rate is, there is no doubt that inflation is here. Many of our clients can be tempted to panic, but there is a way to combat it. Below, we will show you how to calculate your business inflation rate so you know exactly how bad it is.
Items Inflation Doesn’t Affect
Remember that certain items are set in stone that inflation can’t affect. For example, your mortgage interest rate should not be affected considering if you have a fixed rate. So if your rate was 3.5% when you first took out the loan, it is 3.5% now. Inflation is also a good time to consider refinancing your home if your interest rate is high enough or the terms are good enough. Contact your mortgage broker to see if it is worth it. Other items such as credit card interest rates and bills such as your utility, phone, and internet bill will remain the same if you signed up for contracts that don’t expire any time soon.
How to Calculate Your Business Inflation Rate
Unfortunately, not all of your expenses are fixed. You may calculate your inflation rate by tallying your usual expenses from 2020. These include:
- Rent or mortgage.
- Water, gas, and other non-fixed utilities.
- Expenses for products, components, and other forms of inventory.
- Payroll expenses.
- Insurance costs for health, property, commercial, and other.
- Auto, transportation, and shipping expenses.
- Costs for office supplies.
- And any other expenses related to your business.
Those of you with a bookkeeper can simply ask him or her to gather this data for you.
How to Utilize the Data
With this data you may calculate the inflation per expense. For example, say you spend $1,000 per month on your rent. Rent went up to $1,200 per month. Here is how you would calculate it:
($1,200 – $1,000) ÷ $1,000 = 0.2 x 100 = 20% business inflation rate for rent. You would then calculate the inflation rate for all your adjustable expenses, then average them out. You may also use this inflation rate calculator to get a general idea of inflation on the whole. However, it won’t help you get an exact rate as our calculations did.
With this information, you can make informed decisions on items such as cutting expenses, adjusting payroll costs, and setting prices.
Help Fight Inflation With Our Bookkeeping Services in Houston
Finally, feel free to give us a call if you are worried about your business inflation rate and would benefit from the services of a professional bookkeeper. We can also help with payroll, taxes, accounting, and many other related tasks.
