As if the nation’s economy wasn’t volatile enough thanks to the Covid-19 pandemic, we’ve started hearing anxiety about inflation. Recent jumps in consumer and commodity prices seemed to catch the experts at the Federal Reserve Bank by surprise.

For business owners, the specter of inflation is one more element of uncertainty on top of issues related to impaired supply chains, labor force shortages, and Capitol Hill’s wrangling over potential tax increases, all of which can feed higher prices and inflation. Without a clear sense of the economy’s course, some business owners are uneasy about making major investments in their companies or moving forward with new initiatives.

The problem with the wait-and-see approach is the world isn’t standing still. When you try to wait out the uncertainty, your competitors probably aren’t doing the same. Delaying and hoping usually isn’t a prudent strategy for keeping your business viable.

Most of today’s business owners have never lived through truly inflationary times. They have no memory of President Nixon’s efforts to put the brakes on inflation by issuing a moratorium on price increases, or the chaotic double-digit inflation that predictably followed.

So how can you prepare for the possibility of inflation? Think about what you do to plan for the extreme weather that’s a part of life in the Hoosier State. In any given year, you may face a severe thunderstorm that knocks the electricity out for several hours, freezing rain that traps you indoors for a few days, or flooding that interferes with your ability to get around.

Since we can’t predict exactly when those things will happen, most of us take steps to be prepared. When we know stormy weather is in the forecast, we make sure our flashlights have fresh batteries and we top off the generator’s tank. If TV weather forecasters get worked up about the blizzard blowing through the Plains, we stock up on bread and bottled water. We don’t do those things because we’re terrified. We do them because we want to minimize the impact the weather will have upon our lives.

Effectively preparing for inflation and economic uncertainty is similar. Instead of freezing in fear, smart business owners look at their situations, evaluate the risks, and follow strategies to limit the potential for problems.

I’ve always been a big believer in taking action before the need to do so becomes desperate. When you wait until the situation becomes tough, your options are generally far more limited. Start by developing an understanding of how your industry is likely to be affected. There are always winners and losers with inflation. Companies operating residential and commercial real estate tend to fare well because their credit costs remain fixed while the rents they charge increase. Companies in commodity industries are typically early beneficiaries because commodity prices are among the first to increase during inflationary times.

If you’re in an industry that’s likely to suffer adverse impacts from inflation, now’s the time to think about how you might expand your working capital. After all, as costs climb, the cost of capital will also increase. Taking steps to expand your working capital today, such as increasing existing lines of credit, may keep you from having to scramble down the road.

Similarly, if inflation continues or accelerates, we can expect to see interest rates climb. So if you’re planning to borrow for a business need, you may want to do that now while rates are still near historic lows. Similarly, if you’ve already borrowed and have an adjustable-rate loan, you might want to look into converting to a fixed loan so you can lock in today’s rates.

It’s also a good time to look at your business costs and how they may be affected by inflation. Are you currently dependent upon a single supplier, limiting your flexibility if that supplier increases their prices? Do your agreements with suppliers include automatic adjustments for inflation? Now is a good time to renegotiate those agreements and possibly try to lock in fixed prices. Conversely, you’ll want to give yourself as much pricing flexibility as possible so you can pass any increases in your cost of goods along to customers.

Where should you think about investing if you believe inflation is inevitable? Two excellent areas are your company’s customer service and marketing. If it appears higher costs and steeper rates are ahead, now’s the time to protect your market share and retain your existing customers, because acquiring new customers will only become more costly. Should you end up having to raise prices, customer loyalty and a well-differentiated brand should shield you from losing business. And if inflation doesn’t occur, you’ve strengthened your business. That’s a smart strategy no matter which way the economy moves.

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Karen Gregerson is President & CEO of The Farmers Bank, a locally owned and operating bank with 10 banking offices in Central Indiana.

The Farmers Bank is a $775 million asset organization chartered in 1876 with headquarters in Frankfort, IN.  The Farmers Bank is locally owned and operated with 10 banking offices located in Central Indiana providing retail, business, investment & trust services, mortgage, and electronic banking services.  Member FDIC, Equal Housing Lender.