9 Ways for Small Business Owners to Combat Inflation
Everyone– and we mean everyone– has felt the burn of inflation in the past year. Be it gas, rent, food, or multiple bumps in interest rates, and life isn’t getting any cheaper this year.
The latest Consumer Price Index (CPI) disclosed that between May 2021 and 2022, inflation rose 8.6%, which is the highest one-year increase since 1986.
As prices climb, inflation is the number one concern of small business owners, according to a March Chamber of Commerce survey. The survey added that:
One in three (33%) small business owners now rank inflation as their highest concern.
85% of small business owners say they are concerned about the impact of inflation on their business, up from 74% last quarter.
In response to inflation pressure, 67% of small business owners have raised prices.
Inflation is also leading to increased Interest rates as the Federal Reserve attempts to keep the cost of borrowing down. In July, the Federal Reserve announced that it’s raising interest rates by .75 percent after it announced a similar rate hike in June. Further rate bumps are expected to continue.
The rate hikes could have long-term effects if you’re carrying credit card balances, and they may also affect how potential buyers view the potential sale of your business.
If you plan to seek financing to grow or stabilize your business, know that now is the best time to secure your interest rates, as the Fed has already hinted at another rate hike in September.
Ways to Manage Inflation
Until that happens, however, now is the time to take a hard look at your business and find ways you can manage the impacts of inflation.
While raising prices is one option, it could lead to negative long-term consequences, including losing customers. Instead, below are nine steps to streamline your business and tighten your expenditures as you get it into the best shape for a possible sale.
1. Cut Costs
When it comes to combating the challenges of inflation, the first step is the most obvious one. Cut back on unnecessary or superfluous costs. A recent report in CNBC noted that small business owners are almost universally taking a deep dive into their spending, with many reporting deep cuts. The top cuts according to finance automation site Ramp are:
Electronics spending has dropped by 59%
Shipping spending has decreased by 28%
Advertising spending has decreased by 14%
Spending on SaaS and software purchases has decreased by 11%
2. Take a Second Look at Your Budget
After you’ve taken the first hard look at your budget, take a second look. Better yet, pass the budget to colleagues, trusted advisors, or even family members and have them review the details. Their fresh set of eyes may pinpoint unnecessary areas of spending, or they may identify potential cost-cutting measures that can help you strengthen your bottom line without raising prices.
3. Talk with Your Vendors
When it comes to riding out record-breaking inflation, your vendors are equally concerned about losing their customers due to cost-savings measures. Talk with your partners to see if you can negotiate better payment rates by agreeing to terms such as prepayment or longer contract periods. Also, ask them if they are offering any incentives. Just don’t lock yourself into an agreement that may ultimately harm your business when the economy begins to shift or when it comes time to sell.
4. Stay in Touch With Your Customers
In an economic downturn, marketing is often the first item to hit the chopping block. But this isn’t necessarily an efficient budget cut. When economies are turbulent, your customers are challenged with making hard decisions and their choices aren’t always based upon logic. Don’t let radio silence set the tone for your customer service strategy. Be sure to stay in touch with them and keep them apprised of any business decisions–such as raising prices–and why you’ve had to go that route. And, as always, thank them for their business.
5. Incentivize Your Top Customers to Sign New Agreements
It’s always good business to offer special bonuses to your top customers, but that’s especially true in an inflationary environment. Are you able to lock your customers into a longer deal or one with better terms by offering them a pay-now incentive? Can you pass along incentives negotiated through your vendor agreements? Your top customers deserve special care, and while that care is good business, it could also mean locking in incremental business.
6. Talk to Your Financial Institutions
Massive spending on credit card debt is never a path to financial prosperity, which is equally true during inflation. But try speaking with your financial institutions, banks, credit cards, and other payment processing sites to see if bringing down your fees and interest rates is possible. While you’re at it, see if you can negotiate reduced charges for your customers. See what deals other institutions are offering and ask your bank if they are willing to match those rates.
7. Cut Back on Services or Ancillary Products
As businesses look for cost-cutting measures, new products and ideas are increasingly entering the market to help increase efficiency. Some hotels are turning to robot maids, bars are now offering pay-to-dispense beer taps, and restaurants are cutting printing costs by offering electronic, on-demand menus via QR codes. Are there innovative ways your business can scale back–without affecting your core product or service?
8. Bring Your Remote Work In-House or, Conversely, Outsource
If you rely heavily upon freelancers to help with routine tasks like marketing, finances, or other departmental tasks, consider the freelance budget allocation to see if it makes financial sense to bring some of that work in-house.
Conversely, if you run a small operation, you might also consider outsourcing some of the work that prevents you from focusing on the big picture. While this may seem counterintuitive, outsourcing may end up saving you money.
A simple rule of thumb, calculate your estimated hourly rate (CEO salary divided by 2,080 hours . If you are doing tasks (such as posting on social media, for example) that you could be outsourcing for less than your hourly executive wage, you are costing your business money. Save your higher salary hours for the tasks that require your executive-level time and attention and outsource the rest.
9. Automate Tasks
If you’re still billing customers by typing invoices into Microsoft Word or Excel or copying and pasting text between systems, you’re probably spending more on salaries for inefficient practices than you would pay to sign up for any of the many tools that can help you streamline and automate your tasks.
Zapier, a service that helps connect multiple software into one giant, efficient tech network, says its service integrates with more than 5,000 different apps. With 5,000 apps available to business professionals just like you, surely there’s one or two that can help you streamline systems and reduce costs.
10. Find an Expert
When you’re ready to start taking a closer look at building value for or selling your business, the professional business brokers at Raincatcher can help. We have advised hundreds of business owners on increasing their valuation and profitability. And we are always here to help business owners just like you.