You built your dream from the ground up as a small business owner and watched it grow. You found yourself welcoming a large number of customers and making many memories with them. However, you might now have uncertain waters ahead of you as a result of inflation. The last thing you want to happen is for all your hard work to be wrecked because you were unable to get through these challenging times. For quite some time, this has been a top concern for you.
In fact, the quarterly MetLife and U.S. Chamber of Commerce Small Business Index recently released revealed that small business owners’ anxiety over inflation has climbed to a new high. 90% of small businesses express concern about how inflation would impact their operations, with 54% expressing extreme anxiety, up from only 31% in Q1. The Consumer Price Index (CPI) increased by 8.6% between May 2021 and May 2022, which is the highest increase the United States has seen since 1981. However, the fact of growing inflation is not limited to the United States; according to NPR, it impacts 60% of advanced economies.
Fuel and energy, food and other home products, travel, and housing are among the common goods most affected by inflation and undergoing exponential price increases. Rent increases are another key inflation issue affecting small businesses nowadays and can have a negative influence on the survival of your business. Although many small business owners raise their prices as a natural response to inflation, and while this approach may be necessary in some cases, it can also result in customer loss, particularly if done too soon.
In this blog, we’ll offer advice on how to manage inflation while keeping your business lucrative.
Communicate openly with your landlord
Let’s start by discussing rent, which is one of the main problems small business owners are having due to inflation. You should think about negotiating with your landlord if you’re having trouble paying your high rent and have fewer customers as a result of the pandemic. Talk to them about the situation and be honest with them. Tell your landlord how much you can afford to pay in rent and what you would do in the event that you couldn’t come to an agreement. Landlords dislike seeing vacant stores. Be careful to compile the latest rental prices for other areas with similar characteristics before the conversation.
Cut back on expenses
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. Another example would be finding a less expensive alternative by shopping around and comparing prices for office supplies. Consider the following scenario: You own a yoga studio and have a spare room that you rarely use. Think about renting out the area to a different business owner who wants to utilize it for her meditation classes. 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 negotiate over the price with the vendor or look for a less expensive option.
Make cash flow a priority
For small businesses, cash flow is absolutely essential, and a shortage of cash is the main cause of business failure. By enabling you to pay your vendors on time and invest in new prospects, consistent cash flow makes your business run more smoothly. Even so, a large number of businesses have trouble with cash flow.
Find strategies to motivate your customers to make payments to your business more quickly to increase cash flow. Obviously, you’ll want to be adaptable because they’re also feeling the strain from inflation. You might also think about giving customers who pay their invoices early discounts. You could start requesting an upfront deposit for larger goods or services (for example, a hair salon asking for a customer to put down a deposit to receive time-consuming services like a full balayage).
Reduce the supply chain risk of your business
Price increases may have a negative effect on your supply chain. According to a survey, problems with the supply chain have an effect on nearly half of small businesses. Customers who can receive in-person services from businesses, like contractors, are most at risk. Nevertheless, businesses are concerned that issues with the supply chain could cause financial concern in all industries. Rising material costs, material shortages and delays, and increased transportation expenses are a few of the problems you could face.
The greatest strategy to reduce supply chain risk is really to mix among several vendors. When it comes to price increases, you’ll have fewer options if you depend too heavily on one vendor. However, expanding gives you the chance to explore for different goods and resources.
Automate as much as possible
Utilizing technology to automate as many tedious operations and procedures as you can is another strategy to combat inflation. It doesn’t have to be difficult to leverage technology. You can manage tasks like bookkeeping, customer management, and marketing with the help of a variety of apps.
Many businesses are being forced to implement technology that can minimize labor requirements due to wage inflation and a shortage of qualified workers. Many businesses use software to simplify order processing, payment processing, inventory management, and accounting. For instance, manufacturers are creating technology like robotics and 3D printing.
Place your focus on retaining employees
The impacts of inflation are being felt by many people, including you. Since they are spending more on necessities, your staff are feeling the effects as well. However, your employees could expect higher pay as inflation increases. According to a Payscale report, 44% of employers are losing workers because of wages. Your employees will likely anticipate that you will match the cost of inflation or perhaps exceed their expectations.
There are other ways you can help your employees manage their finances if you are unable to afford to give them a salary boost across the board. For instance, businesses may concentrate on figuring out how to increase employee productivity and take into account low-cost suggestions to boost employee satisfaction, such as flexible work hours and remote work—which would reduce commuting costs—as the job allows. Many office-based businesses have fundamentally redesigned how work is done since the pandemic began and have grown accustomed to remote work and work done outside of conventional business hours. Additionally, you could provide allowances for expenses like childcare services, school tuition, or home insurance.
Think about obtaining a credit line
You must continue to invest in your company if you want it to grow and stay strong. One of the best ways to achieve this while preserving cash flow is by obtaining a small business line of credit. A line of credit can help your business fund its working capital requirements, increase employee pay, and make future investments. It is beneficial to take out a line of credit since you can withdraw funds as needed and only pay back what you really need, which enables you to keep one step ahead of the newest challenge.
As mentioned, increasing your prices isn’t the only option to shield your small business from inflation. These techniques can help keep your small business lucrative while also giving it additional protection against inflation. Here at FTx, we provide a wide range of solutions for businesses of all sizes and industries. FTx is here to help you face any challenge that comes your way!