If you’re feeling the pinch of inflation, it’s probably coming from the rising price of goods and services across the nation – like increased labor and material costs. Meanwhile, like many small businesses, you may also be struggling with ongoing supply chain disruptions, and continuing to feel the lingering effects of the pandemic. If your business is already feeling the stress of inflation, or if you’re worried about what’s coming, you’re not alone.
According to new data from a recent U.S. Chamber of Commerce report, managing inflation was, by far, the top concern for small businesses in the first several months 2022. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) rose 7% between December 2020 and December 2021. That’s the steepest year-over-year increase since 1981. Taking food costas an example, prices increased by 6.3%, a significantly larger percentage increase than the 12-month increase of 3.9% in 2020.
What can you do to manage inflation for your business?
With inflation continuing to reach all-time highs, it may be time to take a closer look at your business and find proactive ways to offset rising costs and protect your profits and financial future. Here are five things you can do now to help your small business combat inflation:
1. Reduce expenses where possible
One way to combat inflation sniff out hidden costs in every corner, or find areas where you can cut back. Here are some ways many small businesses are helping to contain rising costs and manage inflation:
- Negotiate better deals with suppliers. If your business relies on raw materials it may be possible to get discounts for preordering, paying early, putting down more money up front, or buying in bulk.If you work with multiple suppliers, you could also consider consolidating and moving all of your business to a single supplier, who might feel inc
- Cancel unnecessary products or services. Take stock of tools or subscriptions that you might be paying for but aren’t using or could do without. For example, if you’re paying for a project management tool or a social media scheduler, see if there’s an alternative solution that could reduce expenses..
- Consider downsizing your office. If you’re paying for office space but could get similar results with your team working remotely, consider changing your work model to reduce overhead. Another option is switching to a hybrid remote/in-office model that offers flexibility but could still reduce costs on office space.
2. Increase income by raising prices – with care
According to a 2022 Small Business Index report, 67% of small business owners surveyed needed to raise their prices to combat inflation. This is a viable solution, so long as you are judicious in your execution. Here are a few things to keep in mind::
- Avoid dramatic changes. Instead, introduce price changes strategically and in small increments so as not to overwhelm customers or clients.
- Be up-front with your regular clients about what’s happening. Don’t let them get caught by surprise when they go to place an order or receive an invoice only to find that they’re paying more than usual. Transparency makes it more likely that customers will understand your situation, accept a higher price on your goods or services, and remain loyal customers.
- Consider easing your customers into it with a sales event. Reach out to customers and tell them that prices are going up on a specific date due to inflation. Then encourage them to buy now at the current prices to save themselves money. This is another way to foster transparent communication with customers, and can give your business a little revenue bump in the near-term too.
3. Diversify your revenue stream
Another good way to help your small business combat inflation is by diversifying your revenue streams or finding low-maintenance passive revenue generators. That way, when one channel or part of your small business takes a hit, you can have others in place to pick up the slack and keep your cash flow moving along. It’s also a way for you to lean into revenue-generating business ideas that aren’t as heavily impacted by inflation. For example, if you run a goods-based business where profit margin is getting hit by rising cost of raw materials, something like an online class or e-book could be a steady way to bring in extra cash with minimal additional expense.
4. Boost productivity
The cost of labor continues to rise, so making every dollar count now is critical to reduce the stress that these increases put on your budget. Consider these steps to keep labor costs low without sacrificing efficiency or work quality.
- Maximize efficiency to boost margins. Find ways to accomplish the same amount of work in less time in order to increase profit margins. That could mean reorganizing a warehouse, or exploring automation to handle time-intensive work like scheduling, order-taking, and billing.
- Embrace tech solutions. Consider using software, apps, or other tech tools to help track and improve productivity.
- Hire wisely—even if it costs a bit more. Don’t be penny wise and pound foolish when you hire. Bringing on a worker who costs 20% more but gets 40% more done in the same amount of time or gets better results is a smart move, particularly during periods of economic challenge.
5. Ensure access to cash
The U.S. Chamber of Commerce asked small business owners if they took out a loan in the past year to combat inflation — and 45% said yes. A business loan or line of credit could be a way for your small business to alleviate the impact of rising costs, reduce cash flow hiccups, and keep things running smoothly. Having more available cash on hand—especially when you have a strong plan in place for using the funds and paying down balances—is a good way to make sure that your business can keep up with the changing costs of doing business.