Small companies around the world have adapted to the unique challenges posed by a new normal 2 years into the Covid-19 pandemic. We now have a better understanding of the economy’s trajectory and how small businesses have adapted to labor shortages as well as supply chain issues.
The most pressing issue confronting the economy today is the cumulative effects of world economic inflation and how to manage cash flow throughout this period. According to a Business.org survey, 60 percent of small business owners are worried that rising inflation will harm their companies’ financial health.
Here we are listing the three key suggestions for entrepreneurs on how to protect their businesses from inflation.
How to Protect Your Small Business from Inflation
- Understand the implications of inflation for your business.
Understanding how inflation will affect your business is an important first step in combating it. You should ask three simple questions:
What costs are rising? Are these expenses for materials, labor, rent, or marketing?
Have your competitors increased their prices?
What else am I noticing in my market or industry?
If you start noticing substantial increases in operating costs and your competitors raising their prices, it’s time to implement inflationary pricing. As a natural reaction to high rates of inflation, prices for necessities at grocery stores, gas stations, and so on are raised in order to pass the cost on to the consumer. Your company should be prepared to respond in the same way.
The next step is to evaluate your business operations proactively rather than reactively. After you raise your customer prices, you can see if you can lock in retail prices with your producers, vendors, or business associates. Long-term contracts can save your company money over the long term while also adding predictability.
It’s critical to understand your numbers: What’s your genuine operating costs? Which ones remain constant regardless of volume sales, and which ones rise for each product sold? Knowing these kinds of details will enable you to make the best future plans. There are numerous low-cost technological solutions available nowadays that can assist you in understanding your costs and forecasting your cash flows.
Inflation will continue to affect the US economy for the foreseeable future, and an emphasis on long-term planning should be placed wherever possible in order to find the right balance to keep your company in a healthy position.
- Create a healthy working capital
Once you’ve determined your company’s nature of competition and cost margins, it’s time to think strategically. With limited cash flow being one of the most common current problems for small businesses, the next step is to guarantee a business line of credit. Smart lending entails having access to funds before you need them, allowing you to quickly smooth out any future financial difficulties.
- Create a 90-day plan.
If you haven’t encountered with your financial consultant in the last 90 days to review your business plan, it’s time to make an appointment. During an inflationary period, it is critical to be intentional and restrained in how your company is managed, including market readiness.
Doing a 360-degree overview of your business strategy, discussing the specific problems in the current environment, is an important part of this process. As supply chain shortages persist, you may need to diversify your supplier base in order to have more options for filling inventory needs.
You might also consider staffing and consider how the competition affects your business in the short and long term.
Inflation-proofing your small business will now pay dividends later.
Even as the world recovers from Covid’s lockdowns and economic obstacles, the scenery for small businesses will continue to change.
Taking these steps can assist small business leaders in addressing the pandemic’s residual effects that are impeding actual economic advancement, while still using it as a chance to profitably grow their businesses.
