The United States, and the world, are facing record inflation in the wake of the Covid-19 pandemic and many business people are looking for ways to navigate the choppy waters. “We’re trying to price our products for the value we provide and we’re seeing inflationary pressure,” Apple CEO Tim Cook said. “I think everyone sees inflationary pressures. There’s no two ways about it.
While Cook harbored the hope that the the pressures will soon ease, JPMorgan Chase CEO Jamie Dimon said on an earnings call that inflation could be much worse than some think. “I think it will be a little worse than the Fed thinks […] I don’t think it’s just temporary.
Whether you’re in the pessimistic boat with Dimon or more of an optimist like Cook, there’s no denying that inflation is a pressing issue that small businesses are feeling in their portfolios. To understand how to deal with these rising costs, we reached out to small business owners who have been there before to learn how to handle the rising cost of inflation.
How Inflation Affects Your Small Business
Inflation hits every business differently. Among the most common effects on your small business are supply chain disruptions that make it difficult, if not impossible, to complete your production of key products. Additionally, supply chain issues can prevent your business from meeting customer demand, just ask anyone who has tried to buy a car in the past year. Shortage of materials can also cause expedited shipping costs for your normal supplies to become exorbitant.
Increased expenses can also limit your cash flow and your business’s ability to achieve profitability. In order to cover the loss of cash, you might be tempted to raise prices, which can turn customers away. Finally, employees who are feeling the effects of inflation at home might come to you asking for pay raises. If you can’t afford to give it to them, they might leave you for a bigger company that can.
Don’t let inflation scare you into extinction, there are ways you and your business can weather the storm. Some steps can be done immediately while others will be continuous steps that will protect you for a period of time.
Our professionals can offer general support, but you should always consult your accountant before making any drastic changes.
Consider a loan
If your small business is being hit hard by inflation, you may want to consider a loan in order to acquire more working capital. “People may be afraid to take out a loan when inflation is so high, but it’s actually a great time,” says Benjamin Meskin, president of Cabrelle. “When inflation is high, your dollars go further, if this persists, chances are you will pay back the money you borrowed with cheaper money.”
To ensure that you can repay the loan responsibly, you must ensure that you use the funds you receive from the loan to reinvest in your business. “Think about the costs and projects that will propel your business in the right direction and increase your sales,” added Drew Sherman, director of marketing and communications at rpm. “This may include buying in bulk to meet customer demand and grow your inventory, hiring new employees to manage changes to business needs, new marketing strategies to drive business, new technologies and equipment, and investing in a new location or making updates to your brick-and-mortar store.
Put money in an interest-bearing account
Interest rates have been low for a while, but don’t expect it to be that way for long. The Federal Reserve will likely raise rates in 2022, making now the perfect time to throw money into an interest-bearing account so you can receive higher payouts on your assets.
“It will probably take a bit of time to see a gain, but the sooner you transfer money into these accounts the better,” Sean Doherty, GM at Genie Box. “Every little bit you do will make a difference and help your business if it needs emergency funds.”
Reduce expenses where possible
“Any way to minimize the effects of inflation on your business is worth exploring,” says Jeff Goodwin, senior director of performance marketing and e-commerce at Orgain. “Reducing your overhead and variable expenses will help you increase your cash flow, allowing you to better serve your customers.”
Review your current expenses and rank them according to the value they add to your business. Never cut anything that will negatively affect your customers or your ability to serve them. Instead, look at things like the need for a physical location. “Is there a real need for a showroom or can you move everything online?” asks Dan Potter, Managing Director and CEO of CRAFTD. “See if you could move somewhere cheaper if possible. Delete any marketing plans that aren’t paying off, cancel business software subscriptions that aren’t making any profit. Do everything you can to track your spending and cut back when the opportunity arises.
Automation and technology
One of the best weapons companies have against inflation in today’s modern world is our ability to use technology. Technology enables businesses large and small to do more with less staff and less overhead.
Options such as robotics on the assembly line and in factories, self-service machines to streamline the customer experience, and AI to handle customer queries are all technology applications that can help your business survive. to inflation. “Technology can help you accomplish more while spending less,” says Alex Wang, CEO of Ember Fund. “Consider all options when fighting inflation. Some typical options include a CRM, inventory management software, payroll technology, project management software, point of sale software, and equipment.
Take advantage of the times we live in and research what your team can afford.
Losing Valuable Employees is one of the worst things that can happen to your business in times of high inflation or otherwise. Without them, you might struggle to keep up with customer demand, losing business in the process.
“Keeping your talent in times of inflation doesn’t mean you have to scramble to find more money to pay them, although I’m sure they would appreciate it,” Karim Hachem, vice president of e-commerce at Manhattan Beachwear. “Most employees care more about flexible work hours, benefits and stability.”
To make sure your employees don’t move to more inflation-proof companies, interview them to determine what it will take to keep them on board during times of inflation. While you’re at it, carefully review your payout structure and confirm that it’s competitive. Think outside the box when it comes to benefits. Would employees get a welfare allowance or unlimited vacation days? Offering global flexibility will do a lot in the eyes of your workers.
Last option: increase prices
“This should only be done if you’ve exhausted all other options,” Leo Livshetz, Founder and CEO of Pin up. “It could shake up your loyal customers, so be careful. Losing customers is the last thing you can afford at this point.
Instead of increasing prices across the board, start with your most expensive bid and then make small strategic changes once you see how the initial change is taken.
Inflation is hard on small businesses, but it doesn’t have to be the end of the world. Like all things, it will eventually pass and you and your business will emerge stronger than before. Using these handy methods will help you survive until it happens.