After weathering the storm of the Covid-19 pandemic for the past two years, small businesses are facing yet another significant challenge: rising inflation. While small business owners can take solace in the fact that they’re not facing this challenge alone, it can be difficult to come up with a game plan to hedge against inflation. Below we’ll go over some top tips to help you do just that.
What’s Driving Inflation?
Inflation is a sustained increase in the price of goods and services, and it weakens the purchasing power of currency. In the US, demand surged once the economy re-opened post-pandemic lockdowns, and Americans were eager to spend money they had saved, including government stimulus checks. At the same time, we started to experience supply chain issues as a result of Covid-era policies. This put pressure on the supply-and-demand flow, with supply falling exceedingly short of demand. Rising oil prices, which lead to rising gas prices, are also to blame.
Media coverage on inflation tends to center the consumers, but the challenges posed to small businesses can be even greater, including:
- A loss of money due to rising supply costs
- A slowdown of incoming invoice payments as clients struggle with their own financial hardships
- More hurdles to access funds as financial institutions often tighten borrowing requirements for the duration of higher inflation
These challenges force the small business owner to either absorb higher costs or raise prices for the consumer. However, there are inflation protection measures that can help to alleviate this dilemma.
Use Automation to Increase Productivity
If it’s possible to automate certain daily tasks, do it. Tasks that make the most sense to automate include those that are repeatable and don’t take a lot of brainpower to complete, including:
- Contracts
- Purchase orders
- Invoices
- Inventory
- Shipping
- Sales and marketing
Automation cuts down on errors, simplifies processes, and enhances customer service. There is a plethora of apps available to help you, from implementing basic bookkeeping to boosting client care, ramping up marketing, and more. You may be using some of these apps already, but be sure you’re taking full advantage of the features they offer.
Cut Expenses
Reduce costs wherever you can. Cancel any services, subscriptions, and products your company isn’t using. Also consider looking into alternate materials, products, or ingredients that may be less expensive and will help ultimately save money. Something else to think about: Is transitioning to a hybrid remote/in-office model that would give you the opportunity to downsize your office a possibility for your business?
Tackle Debt
If you have any residual funds from the Covid-era stimulus packages, now is the time to use those to pay down high-interest debt, especially as interest rates are expected to keep rising. You may not be able to wipe out your debt completely, but try to cut down at least the principal amount. Decreasing how much you pay through lowering interest rates can aid in protecting against inflation.
Additionally, don’t discount trying to renegotiate loans or lines of credit with your lender in order to lower interest rates. Doing so will allow you to save money, which you can put into savings reserves.
Lower Your Supply Chain Risk
Your business is going to be susceptible to supply chain disruptions. To further protect against inflation, lower your supply chain risk by:
- Organizing backup supply chain options
- Exploring domestic substitutes for overseas suppliers
- Storing stockpiles of essential supplies for the least possible storage costs
Raise Prices Strategically
Even if you’re automating processes and cutting expenses, sometimes price increases can’t be avoided during periods of high inflation. Always keep a pulse on what the competition is doing, and be careful not to raise prices too quickly. Pricing yourself above the market without a strategic approach could lose customers.
