How to Minimize the Impact of Inflation on Your Small Business

As the prices of goods, services, and labor continue to soar and supply chains are still unstable, small business owners are left to weather the aftershocks of the pandemic. Small businesses are particularly vulnerable to the effects of inflation as the prices for raw materials and inventory are driven up and the purchasing power of consumers is reduced.

What is inflation?

Simply put, inflation is an increase in prices over a period of time. Inflation results in a higher cost of living and can occur gradually (as in the cost of milk rising from $2.48 in 1995 to $3.55 in 2021) or suddenly (as seen in the increase in gas prices earlier this year).

What happens when inflation happens suddenly?

Slow, gradual increases in inflation occur naturally over time. Along with these gradual price increases, wages increase to account for the increased cost of living. A problem arises, however, when there is a sudden and rapid increase in inflation like we’ve experienced recently. Inflation like this can be especially challenging for small businesses because of:

• Increased operating costs
• Narrower profit margins
• The need to pay higher employee wages
• Cash flow issues.

What can I do to cope with inflation as a business owner?

In a recent survey by the U.S. Chamber of Commerce, 44% of small businesses cited inflation as their biggest challenge. So, what can your company do to combat the highest rate of inflation in 40 years? Try these 5 tips:

1. Review Your Spending

Get selective about your costs and think about what purchases are essential and which ones you can do without. Can you pause any service contracts or do away with them completely? Are there areas where you can temporarily cut back such as newspaper or magazine subscriptions? Be diligent about monitoring your company’s spending with more frequency during periods of significant inflation.

2. Automate

Between the current employee shortages and inflation, it’s a good time to consider automating the most time-consuming, repetitive, or manual processes in your business. This will not only help things run more efficiently, but you’ll save money on labor costs and free up your staff’s time to work on other tasks. There are tons of free and paid tools to help you use technology to your advantage as a small business owner. Not sure where to start? Here are a few of the easiest ways technology can save you time, money, or resources:

• Use invoicing software to automatically send invoices and follow-up reminder emails
• Adopt self-serve methods so customers can place orders without the help of an employee
• Automate your company’s payroll
• Streamline your social media posts by automating and prescheduling them
• Create automated email campaigns
• Take advantage of appointment scheduling tools that integrates with your calendar.

3. Rethink Your Products, Services, and Pricing

Your customers are also feeling the effects of inflation and are becoming much more selective in their spending. As they closely guard their dollars and reevaluate their spending habits, try to think about ways you can continue to serve your customers with items or services that are higher-profit and easy to keep in stock or fulfill. This could mean a restaurant experimenting with a new dish using cheaper ingredients that are easier to keep in stock, or a service-based business creating new packages adding on an additional service that will cost their company very little. If you have to raise prices, doing so gradually may make it easier for your customers to swallow.

4. Buy in Bulk

As prices continue to rise and supply chain disruptions persist, it’s a good idea to consider purchasing inventory in bulk. Oftentimes you will be able to secure a discounted price for buying larger quantities, plus you can stockpile what you need before it goes out of stock again.

5. Secure Funding Now

If your company is beginning to feel the strains of inflation, you should consider securing business funding sooner than later. Obtaining a business line of credit can help prevent cash flow problems, allow you to stock up on inventory, and help cover any increased costs you may be experiencing. That’s why being proactive and seeking financing before you need it can help improve your chances of success.

Interested in securing financing to help your business?

With small business funding from SBG, inflation has nothing on you! Contact us today to learn more.

---