Rumors and speculation are spreading about the possibility of increased inflation. Small and local businesses, in particular, are really beginning to feel the pressure.
Every little uptick in the rates is like a hidden tax eating away at your profits and savings. Customers who feel the crunch are less likely to buy from you. This further deepens the problem.
What exactly is inflation?
Inflation is measured by the CPI, or Consumer Price Index. They calculate the inflation rate by subtracting the price of a basket of goods from the previous year and comparing it to current prices percentage-wise. So, if the same basket of groceries you bought last year for $50 cost you $55 this year, there’s been a 10% rise in inflation (5/50=0.10;0.10+1=1.10).
Inflation, to some extent, is natural. It will vary widely among different locations and industries because each has its own unique supply chains, demand, etc. But the kind of inflation that worries analysts is caused by a sudden increase in the money supply without an equal rise in economic activity. Or also when the government intervenes by passing new fiscal (lower taxes) or monetary policies (lowering interest rates).
When inflation occurs, you end up paying more for the same goods and services. This change in prices can decimate a small or local business. You mustn’t wait and react to inflation. You must take steps in advance to prepare your company for whatever changes might impact your business through the coming year.
Here are 7 tips to help prepare your local business for inflation:
1. Evaluate how much impact inflation could have on your business
Take a deep look at your company's needs and processes. While inflation is a scary topic, it doesn’t affect every business the same way. If you work with a lot of domestic goods or services, your production costs will most likely go up with domestic prices. However, if your local company buys raw goods and materials from overseas, you might not notice the changes as much. Similarly, suppose your business sells services and doesn’t deal in raw materials much. In that case, your prices are only impacted by your personal needs.
2. Get big purchases out of the way early
Larger purchases like new company cars, commercial properties, office equipment, and software get more brutal as your local business feels inflation’s crunch. When inflation rises, it’s best to put off significant purchases and use your money where it’s most essential. Evaluate if you really need these new purchases, and if you do, buy now rather than later when their prices are likely to be even higher.
3. Check your inventory
Getting inventory right is difficult enough during regular times. But during inflation, it’s even more challenging. Too much inventory and you could be left holding onto stock during lower sales times. But if you don’t stock enough, you’ll be subjected to higher prices from your vendors when it’s time to buy more. You can avoid having to raise your costs down the line if you stock up before prices rise. How much stock you decide to keep will depend on what kinds of goods you sell. Some industries can afford to hold onto things longer than others. If you have the option of stocking up now, you should think about doing so.
4. Give your customers pricing options
It might seem counter-intuitive to offer your customers deals and discounts when your prices are rising. But everyone feels the pinch during inflation. Customers who are struggling will have to make difficult decisions about what they continue to buy and what they put off until prices go back down. You don’t want your business to be something they sacrifice due to higher prices. If you can’t afford to offer discounts, you could also consider extending financing options to your customers. This allows them to keep buying from you at full price while meeting their current needs. Let your customers know that you understand their pain and value what they’re going through. Show them that you are doing everything you can to help them, and you will be rewarded with customers who stick by your side for the long term.
5. Cut any unnecessary expenses you can
One thing is always certain with inflation, prices will go up. You can’t plan exactly how much, but you know they’ll rise. The best way for a small business to prepare for these new costs is to trim all the extra spending you can. Is your office larger than what you really need? Could workers be working from home, freeing up space? Could you outsource some of your workers? If inflation doesn’t rise to what you fear, you’ll still increase your profits and efficiency!
6. Negotiate with your suppliers
Reach out to your suppliers early, talk to them about your fears, and listen to what they’re going through. If you have a fixed price setup, you might not be able to change the terms of your contract without giving something up or making changes to your agreement. But it doesn’t hurt to attempt to negotiate things early, rather than waiting until after the full effects of inflation are in swing. You will never know what’s possible until you talk honestly with them.
7. Establish an emergency fund
The effects of inflation don’t always hit all at once. It could impact your business tomorrow, or you might not feel anything for a few years. When you set up an emergency fund, you’re able to ride out the waves of price changes without struggling with debt or being forced to lower the quality of your products or services. You can also put your emergency funds into a high-yield savings account so that it’s making money while waiting for that rainy day. Experts suggest setting aside at least 6 months' worth of operating expenses.
A little preparation goes a long way
You can’t ignore or avoid inflation. But you can prepare yourself for its effects. With a bit of pre-planning, you can protect yourself from unnecessary losses and costs.
Don’t be afraid to reach out to others for help and support. Seek financial experts and ask them about what you can be doing. Talk to friends and coworkers openly about what you’re going through.
Unfortunately, you can’t guarantee that you can avoid all the impacts of inflation. But if you plan and take action early, you are in a much better position than if you sat and waited as if nothing was happening.
If you need help communicating any of your pricing or marketing strategy changes, we’re here to help.
We can also help you develop a website SEO strategy that will help improve your organic search results so you don’t have to rely as much on paid advertising.
Please reach out to us today if there’s anything we can do to help you prepare your business.