Inflation has been rising over the last year, but what does that exactly mean? Inflation is the rise in prices. As it increases, the value of your dollar decreases and therefore so does your purchasing power.
The hope is that prices gradually increase over time and not rise too quickly. If they rise too quickly, it can be difficult not only for consumers but also small businesses as customers are less likely to purchase products or services. If there are large cost hikes, buyers are most likely going to prioritize necessary purchases and reduce spending in other areas that are less important.
How does inflation impact your business? An rise can cause manufacturing and production costs to increase. This affects the price of goods and services for your business. If you have higher expenses, your profitability will be reduced. Thankfully, when inflation rates skyrocket, the government generally steps in and helps to control the prices.
Today, nearly three-quarters of entrepreneurs have reported an increase of at least 20% in the costs of their supplies and services that are needed in order to keep their business running.
Unfortunately, many small business owners generally do not have significant cash reserves, which can make it difficult to place larger orders now that could help them manage the increase in costs. When this happens, businesses generally have to increase their prices, which hurts their customers.
With this in mind, how can your business survive inflation? Below, you can find eight tips to help you protect your future:
- If you need to improve cash flow, consider applying for a business loan prior to interest rate hikes.
- Review the types of products and services you offer. See if there are ways that you can increase your profit margins.
- Keep communication with vendors open and see if you can build a mutually beneficial relationship to support one another during difficult times.
- Buy items in bulk to take advantage of the lower price prior to a large fee increase.
- Consider raising your prices, but do so strategically, otherwise you could harm the relationship you have with your customers.
- Be open with your customers and be sure to take the time to thank them for supporting your small business.
- Focus on improving productivity. This means to start streamlining your processes and invest in technology that could help you automate your work.
- Reevaluate your business insurance to make sure coverage includes the current replacement prices. It can be costly to replace equipment and rebuild if your company were to suffer damages.
Although you can never know exactly what will happen in regards to inflation, you can make your business resilient by following the above best practices.
