The Bureau of Labor Statistics consumer price index reports that the dollar has experienced an average inflation rate of 5.26% per year from 2020 to the present day. That’s a staggering cumulative price increase of 16.62%! To put it another way, today’s prices are 1.17 times higher than the average prices in 2020.
As a small business owner you have likely seen your operating costs increase, simultaneously as the cost of goods and services needed to run your business have gone up. Meanwhile, If you have employees, you have probably felt the need for increased wages to keep up with the rising cost of living. It’s tough out here for small business owners!
Surviving inflation requires adapting and continuously investing in yourself and your business. That’s why we put together this list of tips to help your business not only survive, but thrive…
Reduce Expenses
To thrive during periods of increasing inflation, the first step for any small business is to reduce costs wherever possible. This can be achieved by:
- Cutting unnecessary expenses. Consider eliminating unnecessary recurring services and subscriptions for your business. Chances are during good times you have stacked up a few subscriptions that you either don’t utilize, or that can be replaced with cheaper alternatives.
- Streamlining your processes. I bet that long periods of success have created minor inefficiencies in your systems and processes that you can improve upon!
- Opening communication with suppliers to re-negotiate! Our first step to working with your suppliers is always to build a strong relationship based on open communication and a willingness to collaborate. However, when re-negotiating with suppliers, be prepared to:
- Research current market prices and compare them to what you’re paying to determine if you’re overpaying
- Approach your supplier with a proposal that outlines specific areas where you believe cost reductions are possible
- Consider a longer-term contract in exchange for more favorable terms and lower pricing
- Be prepared to negotiate multiple times to reach a mutually beneficial agreement.
- Actively monitor your budget. No matter if inflation is through the roof, or if we are experiencing a period of economic boom, it is critical that you actively monitor your budget. Doing so enables you, the business owner, to stay on top of expenses, track progress toward financial goals, and make informed decisions about resource allocation.
Focus on Cash Flow
Cash flow is a critical factor for the success of any business, and lack of cash flow is the most common reason that businesses fail. Becoming more liquid isn’t always as simple as cashing out assets or closing out open payments. Some other ways that you can focus on cash flow while times are tough include:
- Monitor cash flow regularly so that you can identify gaps or trends.
- Speed up collections while maintaining professionalism. Consider incentivizing early payments or updating contracts.
- Retool your strategy to increase your working capital.
- Manage your inventory. Carefully consider what inventory can be sold, as well as reducing pars for inventory moving forward.
Happy Employees Matter
As inflation continues to impact our economy, retaining loyal and hardworking employees is more critical than ever. Losing a skilled employee can be financially devastating, especially when hiring and training new employees in today’s tough economic times can be a significant burden.
To weather the storm of inflation, it’s crucial to do everything you can to save your employees money and keep them happy. One way to do this is by offering benefits like flexible schedules, remote work options, and creative incentives that show your appreciation for their hard work.
Don’t be afraid to open the lines of communication with your employees. If there is anything I have learned in my life, it is that communication solves most problems! Talk to them about their concerns and find ways to support them during these challenging times. Remember, small gestures like buying lunch for the office bi-monthly can go a long way in boosting morale and retaining your top talent.
Reduce Supply Chain Risk
Inflation can wreak havoc on your supply chain, resulting in increased costs, shipping delays, and significant shortages that can be hard to overcome.
But fear not! There’s a simple yet effective solution to reduce the risk of supply chain problems and keep your business running smoothly: diversify your supply chain. By sourcing your materials and products from multiple vendors, you gain the flexibility to pivot quickly when prices spike or availability becomes scarce.
Not only does diversifying your supply chain help you mitigate risks, but it also opens up opportunities to negotiate better prices and improve your overall product quality. Plus, by working with multiple vendors, you can foster healthy competition that incentivizes them to provide better services, faster deliveries, and more competitive pricing.
Seek Professional Guidance
Running a business during times of high inflation isn’t always easy, but it certainly isn’t impossible.
Although economic uncertainty might distract you from tax planning or focusing on retirement strategies, high inflation or economic recession is no time to take your foot off the gas.
Taking care of everything that you need to take care of as a small business owner can be a daunting task even in a healthy economy. Our final tip is not to forget one of the strongest tools a small business owner can arm themselves with: a financial and/or tax advisor that they can trust.
Schedule a one on one meeting. Let’s sit down, look at your unique situation and determine the best strategy for you as a small business owner.