Businesses have enjoyed over a decade of interest rates that barely registered on balance sheets. Unfortunately, that low interest environment has made it easy to forget what to do when the Federal Reserve does raise rates.
Some of you have been there, but it’s been a while. Others may be navigating uncharted waters. Either way, check out the tips below on how to prep your small business for rate hikes.
Scrutinize your debt
If your small business has debt (and most do), now is the time to determine if any loans will become adjustable soon. If so, get with your business advisor or CPA to determine if switching to a fixed-rate loan makes economic sense.
While you’re checking out the business side of the house, look at your personal loans. So often, personal finances and business finances are intertwined. So, if you have any bad debt, now is the time to start looking at getting rid of it before it hits your business bottom line.
Consider the cost of goods
Interest rate hikes mean your suppliers, who also have loans, may have to raise prices to contend with their own debt loads. If this is the case in your business, determine if you need to raise prices in kind.
Be careful and get plenty of insight from trusted advisers on this decision. No two businesses are exactly alike, and there are alternatives.
If you have to raise prices, get with your team and determine how much is needed to offset rising prices and how much your customers can handle before they buy less from you.
Watch hiring and expansion
We are at an economic crossroads. There still aren’t enough workers to meet consumer demand, but white-hot inflation and rising rates may slow spending very shortly.
When the economic waters are this murky, it pays to use caution before moving forward with those new hires or those expansion plans.
Consider taking out a loan now
Wait. Wasn’t the last piece of advice to be prudent and cautious? How does taking out a loan fit into this approach?
Rates are going up until the Federal Reserve gets a grip on inflation. No one is sure how long that will take. So if you know you’ll need a business loan, now may be the time to lock in rates before they go even higher.
Another reason is that lenders may soon be tighter with cash, and loans may become harder to get. Of course, many variables impact a decision like that at a time like this. So, the next piece of advice is probably the most important.
Ask for help
Now is not the time to go it alone. Instead, seek help both within and outside your business to make the best financial decisions possible.
And when you seek advice, don’t be afraid to over-communicate. Provide advisors with as much information as possible, including any biases and fears affecting your decision making process.
These are strange times, but these tips should help you stay calm and ride out any economic storms that may be coming your way.