With These 6 Tips, You Can Protect Your Small Business From Inflation
Here are six strategies to safeguard your small business from inflation and maintain its profitability.
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The Consumer Price Index (CPI) increased 8.6% between May 2021 and May 2022 as inflation continued to soar. Since 1981, the United States has not had a rise quite that large. However, 60% of advanced economies are also suffering with rising inflation, not only the United States.
Increasing pricing is a common response of small business owners to inflation. Additionally, even while this tactic could be required in some circumstances, it can also cost you clients, especially if you implement it too soon. Let’s examine six strategies for guarding against inflation and maintaining your company’s profitability.
1. Cut spending
Cutting spending as much as possible is one of the simplest strategies for small businesses to combat inflation. Examine your monthly service agreements in particular to determine if there is anything you can live without.
Do you, for example, continue to pay for a co-working place that you no longer use? If so, you can likely reduce that cost. There may undoubtedly be some important subscriptions that you cannot afford to cancel. You have two options when it comes to those contracts: you can haggle over the price with the vendor or look for a less expensive option.
2. Put cash flow first
For small firms, cash flow is always important, and a shortage of cash is the main cause of business failure. By enabling you to pay your suppliers on time and invest in new prospects, steady cash flow makes your firm run more efficiently.
However, a lot of firms have trouble with cash flow. Find strategies to motivate your customers to make payments to your company more quickly to increase cash flow. Of course, you’ll want to be adaptable because they’re also feeling the pinch from inflation.
You might also think about giving consumers that pay their invoices early discounts. Additionally, you might start asking for an advance payment for larger goods or services.
Reduce the risk in your supply chain.
When prices increase, it may have a negative effect on your company’s supply chain. According to one survey, problems with the supply chain have impacted nearly half of small enterprises.
Contractors and businesses that offer in-person services to clients are especially vulnerable. However, businesses are concerned that problems with the supply chain would cause financial uncertainty in all sectors.
The following are some of the greatest problems you might encounter:
higher expenses for materials
Lack of materials and delays
a rise in shipping fees
The most effective strategy to reduce supply chain risk is to diversify across different vendors. When it comes to price rises, you’ll have fewer options if you depend too heavily on one seller. However, diversification gives you the chance to explore for different goods and resources.
Automate as much as you can
Utilizing technology to automate as many monotonous operations and procedures as you can is another strategy to combat inflation. Utilizing technology doesn’t have to be difficult; there are several apps available to assist you in managing tasks like marketing, customer service, and accountancy.
By utilizing technology, you can expand your company’s output while spending less money, freeing up both your time and that of your staff to concentrate on more complex issues.
5. Put an emphasis on retaining staff
The repercussions of inflation are being felt by many people, including you. Your staff members are affected as well because prices for necessities have increased. However, if inflation increases, your employees could anticipate a pay increase as well.
According to a Payscale survey, 44% of businesses are losing workers because of pay. Employees will probably anticipate that you will maintain, if not increase, the cost of inflation.
If you can’t afford an across-the-board pay increase, there are other ways you can help ease the financial burden of your employees. For instance, letting employees work remotely could cut down on commuting costs. You could also offer stipends for things like child care, tuition or home insurance.
It’s crucial to talk to your employees about their expectations regarding pay proactively. Ask how inflation is impacting their lives and what kind of salary range or benefits package would improve things.
6. Consider opening a line of credit
If you want your business to continue to grow and stay innovative, you will have to continue to invest in your business, and one of the best ways to do this while still preserving cash flow is by taking out a small business line of credit.
A line of credit can help your business meet its working capital needs, offer payroll increases to your employees and invest in your company’s future. The benefit of taking out a line of credit is that you can draw money as you need it and only repay what you actually spend, allowing you to stay one step ahead of the latest challenge.
As you can see from the tips listed above, raising your prices is not the only way to protect your small business from inflation. These methods will not only give your small business more security against inflation, they can also ensure that it remains profitable.