In today’s unstable economy, it is vital for businesses to be able to adjust to the ever changing market. With inflation rising to levels unseen since 1982, many businesses are now struggling with the rising costs for raw materials, rent, labour and climbing interest rates. As a business owner, it is now more important than ever to take active measures to lessen the impact of inflation on your small business. Thankfully, we’re here to help ease that burden.
Here are 6 expert tips that business owners can take onboard to manage the impact of inflation in 2022. Read on to find out more.
1. Work With A Financial Advisor
Business owners looking to identify the best financial strategies during this period of inflation may stand to benefit from working with a financial advisor. According to a top financial advisor in Canberra, the best thing a business can do in these challenging times is to figure out exactly where it stands financially. Although this may sound simple, there is a lot that goes into assessing a business’ financial health, making the need for expert advice that much more important. Whatever product or service your business provides, a financial advisor can ask the right questions and find the right answers to help your business thrive and overcome both current and future crises.
2. Review Your Pricing Regularly
Inflation can wreak havoc on the price of raw materials and other necessary inputs, leading to dwindling profit margins in an already uncertain time. To offset this, it is vital that businesses conduct regular price reviews in order to ensure that prices are still in line with costs. If necessary, you should be increasing your prices in order to ensure you are still making a decent profit. It is also vital to survey competitors in the marketplace to figure out if you are undercharging for your goods and services.
Although this may seem like the “easy way out”, the truth is that inflation is always a looming threat, and input costs will inevitably rise over time. If you fail to increase your prices, you’re going to consistently lose money and eventually end up with a failing business. Many business owners struggle with the concept of raising prices due to concern over what customers or clients may think. However, it is important to note that there are a variety of creative ways to communicate price changes with your clients that can benefit your business in the long run. Find out more about how you can announce a price increase here.
3. Focus On High Margin Goods & Services
To improve your cash position as a business, now is the perfect time to focus on high margin goods and services. In order to do so, we suggest shifting your promotional activity on high turnover items that have a good profit margin. At the same time, removing or reducing products/services with low turnover and low profit margin can also help in reducing your input costs without affecting overall profit.
For example, if you own a cafe or a restaurant, you may want to focus on promoting your top 5 best selling dishes and cutting your menu down from 30 items to 10. By removing unprofitable items from your menu, you will be better equipped to concentrate on popular dishes with the highest gross profit margin. This same concept can be applied to any type of business, regardless of the kind of goods and/or services you offer. In short, keep the best of the best and get rid of the worst of the worst. An inflation inspired tongue-twister, if you ever needed one.
4. Hedge Against Inflation
One of the ways to tackle inflation head on is to hedge against it. But what exactly is inflation hedging? Simply put, inflation hedging refers to investments that protect investors from the declining purchasing power of money due to inflation. This could mean taking out insurance against price increases, investing in commodities such as gold, or locking in prices for raw materials with long-term wholesale contracts.
The 2 main reasons why businesses engage in inflation hedging include:
- To keep operating costs/inputs low; and
- To protect the value of their investments.
Overall, inflation hedging is designed to help businesses minimise loss rather than maximise profit. As such, businesses will still have to avoid overspending on unnecessary things, or making reckless decisions in order to remain in a healthy financial position. By becoming more efficient, you will be able to reduce your costs while still getting the same quality of output.
5. Increase Business Efficiency
Another great way to offset inflation is to increase business efficiency. Increasing efficiency comes in many shapes and forms depending on the type of business you run, but some basic methods include embracing automation, streamlining processes and training up staff. Thankfully, in the age of digital, the opportunities for business owners to streamline their operations and increase efficiency are endless. There are dozens if not hundreds of automation softwares available on the market today, from accounting software and ROTA management all the way to CRM software and inventory management systems.
To find out more about how technology can help your business boost its efficiency, head to this article.
6. Always Have A Plan B
Last but not least, as someone incredibly wise once said, failing to plan is planning to fail. The truth is, despite your best efforts, things may not always go as planned. As a result, it is vital that you have a ‘plan B’ or contingency plan in place so that you are able to deal with any obstacles that come your way. This could involve plans to downsize your operations, setting aside an emergency fund or even selling your business. Sure, this isn’t ideal by any means, but facing inflation with a healthy dose of realism is key to preventing disaster and disappointment down the line.
No one wants to imagine their business failing, and having a strong business plan in place can help to ensure that you are capable of achieving the goals that you have set for your business, even amidst inflation.
Inflation is a fact of life and no matter what business you are in, you are guaranteed to face it at some point. Thankfully, with these 6 tips in mind, you’ll be better equipped to find a solution that best fits your current circumstances and allows you keep your head above water. Until next time, all the best!