As a small business owner, you’re constantly looking for ways to make your money go further. One way to do this is to increase your purchasing power, which can give you the ability to buy more with less.
With inflation on the rise, it’s more important than ever for small businesses to maximize their purchasing power—so you can save money on expenses and make the most of every dollar you spend.
What is purchasing power for small businesses?
Purchasing power is the ability to buy goods and services with a given amount of money. For small businesses, purchasing power is particularly important because they often have smaller budgets and limited access to capital.
For example, in the ecommerce/retail industry, purchasing power can be the difference between being able to stock your shelves with enough inventory for a busy season, or running out before the season’s end. In the construction industry, purchasing power can determine whether you’re able to purchase the equipment you need or have to rent it at a higher cost (or worse: not being able to afford equipment that helps save you time on manual labor).
What impacts my business’ purchasing power?
There are several factors that can impact your business’ purchasing power. These include the cost of goods and services, interest rates, unemployment, and your business’ location. When the cost of goods and services goes up, your purchasing power goes down. Likewise, when interest rates rise, it becomes more expensive to borrow money, which can also impact your purchasing power.
How does inflation affect purchasing power?
Inflation is the rate at which the general level of prices for goods and services is rising, and it can have a significant impact on your business’ purchasing power. As the cost of goods and services increases, your purchasing power decreases by the same amount. This can have a negative circular effect.
For example, if the price of raw materials for your product increases by 300% (like lumber did in some areas during the pandemic), you may need to raise your prices to maintain your profit margins. This, in turn, can make your product less attractive to consumers, which can further decrease your purchasing power.
How to increase your purchasing power
Now that we understand the importance of purchasing power and the factors that impact it, let’s discuss five ways to increase your business’ purchasing power.
1. Boost profit margins
One of the most effective ways to increase your purchasing power is to improve your profit margins. This can be achieved by either increasing your revenue or decreasing your expenses. Ways to increase your revenue include attracting more customers, increasing your prices, or expanding your product line. You can decrease your expenses by finding ways to save money on things like rent, utilities, and supplies, as well as eliminating any unnecessary expenses.
2. Buy supplies in bulk
Buying supplies in bulk is another effective way to increase your purchasing power. Bulk purchases often help you get a discount on the unit price, which can save you a significant amount of money over time. Just be sure to only buy what you need and avoid overstocking, which can tie up your cash flow and decrease your purchasing power. This point is also important for restaurants, hospitality, and any food and beverage providers because overstocking can lead to waste when you’re dealing with items that have expiration dates.
3. Negotiate with your vendors
Negotiating payment terms with your suppliers can also help increase your purchasing power. By extending your payment terms, you can free up cash flow and use that money to invest in other areas of your business. Additionally, by building a strong relationship with your suppliers—often through consistent, on-time bill payments—you may be able to negotiate better pricing or discounts.
4. Find the right business insurance
Having the right business insurance can also help increase your purchasing power. By protecting your business from potential damages or lawsuits, you can avoid costly expenses that could eat into your purchasing power. This can include general liability insurance, property insurance, and workers’ compensation insurance. By having the right coverage in place, you can focus on growing your business without having to worry about unexpected expenses.
5. Apply for a business line of credit
Finally, applying for a business line of credit can be a great way to increase your purchasing power. A business line of credit is a flexible funding option that allows you to draw funds as needed, up to a certain limit. This can be useful for covering everyday expenses, financing big projects, or taking advantage of unexpected opportunities. By having a line of credit in place, you can avoid having to rely on high-interest credit cards or other expensive forms of financing.
Increasing your purchasing power is essential for your small business to maximize its budgets and grow revenue. By understanding what purchasing power is, the factors that impact it, and how to increase yours, you can take steps to make your business more successful.
Whether you’re boosting your profit margins, buying supplies in bulk, negotiating with your vendors, finding the right business insurance, or applying for a business line of credit, there are many ways to increase your purchasing power and make your business more competitive. So start exploring these options today and see how far you can make your money go.