As a small business owner, you know that inflation can wreak havoc on your bottom line. The rising prices of goods and services can lead to higher costs for your business, which may result in decreased profits or even losses.
However, surviving inflation as a small business owner is not impossible. With the right strategies and mindset, you can weather this economic storm and come out stronger on the other side.
“In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, Inflation corresponds to a reduction in the purchasing power of money.” Wikipedia
Inflation affects everything from cash flow, products and services, payroll, and all other overhead costs. So, what is the solution?
If all you do is raise your prices and pass them on to your customers, you will quickly discover that your prospects will start looking around at your competition.
In this article, we explore some practical tips and tricks for small business owners to survive inflation, together with government support options.
The impact of increasing inflation is particularly severe on self-employed business owners.
In contrast to big organizations, they face a higher possibility of not having sufficient resources to establish stability and endure prolonged economic unpredictability. Access to the required funds to counteract a decline in demand starts to dry up. Like the animal world, only the strong survive in business.
Here are six strategies that you can implement into your business.
1) Cut expenses: Carefully review your expenditure and identify areas to cut costs. Renegotiating rental agreements, and supplier contracts, finding alternative, more affordable vendors, and reducing unnecessary expenses such as travel or entertainment should all come under the microscope.
2) Improve efficiency: Review and analyze your operations to identify where you can automate specific tasks, reorganize workflows, or invest in new technology to improve processes and reduce waste.
3) Diversify revenue streams: Investigate how to diversify your revenue streams to reduce dependence on a single product or service. Expanding into new markets or developing new products or services will lessen the reliance on one specific revenue stream.
4) Re-evaluate pricing strategies: Check that your pricing strategies align with current market conditions. Look for ways to increase prices that reflect increased costs while staying competitive. Consider ways you can offer value-adding services to help offset rising costs.
5) Focus on your customers: Customer loyalty becomes crucial during inflationary periods. Concentrate on providing exceptional customer service, maintaining product quality, continuously improving your offerings and communicating with customers. If you can provide value and retain loyal customers, you can better withstand price pressures and potentially offset increased costs through higher sales volumes.
Open and honest communication creates a positive reputation and establishes trust between the business and its customers. Customers are more likely to stay loyal to the brand when they understand the economic situation and their efforts to maintain affordable pricing while remaining profitable.
6) Financial planning and risk management: Develop a comprehensive financial plan, including a budget, cash flow projections, and pricing models to assess how rising costs may affect your business. Implement risk management strategies, such as diversifying your supplier base to ensure flexibility and reduce potential risks.
7) Seek financial assistance: small business owners may be eligible for financial aid from government programs, grants, or loans. Research available options and seek help where necessary. For example, the new Inflation Reduction Act, referenced later in this article, will increase the refundable tax credits for R&D, which can benefit companies that invest in research and development.
In the U.S., the Biden administration has launched its Inflation Reduction Act to reduce the deficit and encourage economic growth through small businesses. Small Businesses can take advantage of the following initiatives:
The U.K. government introduced the Energy Bill Relief Scheme (EBRS) for businesses and other non-domestic customers in Great Britain and Northern Ireland from 1 October 2022. This has now been extended to April 2024 and provides a discount on gas and electricity.
The U.K. government has also withdrawn National Insurance Contribution increases, cancelled intended Corporation Tax increases and removed additional regulation on contractors who provided their services via a limited company. (https://ukandeu.ac.uk/government-support-for-small-businesses/)
According to the Financial Post, government support programs introduced during the pandemic are over, but businesses must now combat inflation.
However, repayment of interest-free loans provided by the Canada Emergency Business Account (CEBA) and Regional Relief and Recovery Fund during the pandemic has been extended to the end of 2023, which has been some (temporary) help to struggling businesses.
And there is also the Canada Small Business Financing Program that makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders.
“Rising power prices are among the biggest burdens on Australian families and businesses.” The government has introduced ‘Energy Price Relief Rebates’ to provide eligible small businesses with a $325 Commonwealth rebate. Some states have matched the rebate, which will result in a $650 benefit to qualified firms in those states.
In summary, inflation can be a daunting challenge for self-employed business owners, but it can be weathered successfully with the right strategies. By monitoring expenses, negotiating with suppliers and landlords, diversifying product offerings, prioritizing customer retention and adjusting pricing strategies accordingly, small businesses can survive inflation and thrive in the long term.
As always, adaptability and innovation remain critical factors for success. Small business owners should stay vigilant of economic trends and adjust their tactics to keep up with changes. With these tips in mind, small businesses can continue serving their customers with confidence and stability despite rising prices.
This completes our series on current issues affecting small businesses. Other articles in this series include:
The Small Business Labor Shortage: Where, Why, and How to Survive
Small Business Supply Chain Disruption: How to Survive
9 Essential Cyber Security Tips for Protecting Your Small Business
Navigating Economic Uncertainty: 7 Strategies for Self-Employed Small Business Owners
Issues Affecting Small Business: Compliance with Government Regulations
“I started my own business in 1995. The Self Employed Business Academy gets it. Clear, concise, and actionable information. You may be in business for yourself, but with the self Employed Business Academy at your fingertips, you won't be by yourself"
Ed Carey, AMG, LLC