In today's business environment, it's important for your business to adjust to the ever-changing market conditions, especially when inflation sets in. Inflation happens when demand outweighs supply in an economy, causing prices across sectors to go up. Inventory, supplies, and labor costs have all been problematic in recent months, causing difficulties for small businesses in nearly every sector of the economy. Inflation can be tough for small businesses, but the right strategies, support, and resources can help you mitigate the challenge. Here are tips for small businesses to deal with inflation.
Review Your Pricing Regularly
Inflation can cause prices of your raw materials inventory and other inputs to increase, which in turn can eat into your profit margins. To deal with this, it's important to review your prices on a regular basis and make sure they are still in line with your costs. If necessary, you should review the prices upward to make sure your business is making profits that can sustain your processes and growth. Be sure to review your pricing on a regular basis so that if inflation creeps in, it won't cost you unexpected losses down the road.
Maintain and Expand Your Network
Supply chain disruptions and concerns about them are fueling the inflation fire. Securing the inventory your business needs to operate is one of the most important ways to protect your business from the harshest of inflation's impacts.
This requires some extra effort on your part to communicate with your suppliers so you can get a sense of what products are in the highest demand. This can help you anticipate future supply challenges and prepare vigilantly. If possible, you can secure long-term contracts with your suppliers to maintain stability in your inventory and prices.
Evaluate Your Labor Market Vulnerability
The impact of inflation on the labor market is sometimes unpredictable. While it's hard to see the exact professions and skillsets that will be impacted, it's important to evaluate your labor market vulnerability. Develop a human resource strategy to attract and retain talent. This should be done through market-rate pay raises, but also through non-monetary compensation such as career development and employee benefits.
Reorganize Your Debt and Borrow Wisely
Debt is part of running your business, but when inflation is high, the boundaries between good debt and bad debt can become blurry. It is recommended to pay down variable, high-interest credit card debt right away, and if you can't, at least transfer it to cards with lower rates. An even better alternative is to refinance high-interest debt into a fixed-interest rate loan with a longer-term. Ensure you reorganize your debt and borrow wisely.
Differentiate Between Strategic and Nonstrategic Spending
In any disruptive environment, odds are higher that executives will make choices that jeopardize the company's long-term strategy. It's not uncommon to make broad-based cuts that are not aligned with the company's strategy – and as a result, will not yield an optimal return on investment nor maximize shareholder value in the long run.
Instead, it's important to clearly distinguish between strategic and non-strategic cost-cutting. For instance, protection of signature customer and employee experiences, and fiduciary requirements. Use consistent, accessible financials to prioritize higher ROI investments. A sustainable cost management system should fuel a company's strategy and enable the business to out-invest competitors.
Expand Your Business Plan Visibility
Conducting a monthly plan review meeting can go a long way in helping your business stay afloat during inflation. Plan visibility is a great way to ensure everyone is on board and understands how the business is doing. By educating your employees and other stakeholders about your company's health, you can give them information that makes them want to invest themselves more in its well-being. All you have to do is make this information available to the employees.
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