Rising prices are making headlines and forcing tough decisions for business owners and employees every day. In January 2022, prices will rise 7.5%, the highest level in 40 years. Although the impact of inflation (especially drivers) is felt by everyone in recent months away, small business owners raise the stakes.
What is inflation?
Inflation occurs when demand in the economy exceeds supply, causing prices to rise across industries. Inventory, supply and labor costs have been a problem in recent months, causing problems for small businesses in almost all sectors of the economy. More than half of small businesses have raised wages since the beginning of 2022, the highest percentage since 1974, according to recent data from the US Bureau of Labor Statistics.
Reduce small business expenses. Second, your money’s purchasing power decreases, meaning your money is worth more than it was before inflation. Finally, materials and services are finally more expensive than they were a few months ago. All of these factors have contributed to lower profitability for small businesses.
Inflation forces small business owners to make tough decisions about raising prices and preserving inventory. This decision-making process can create problems for long-term planning, where you can focus on managing inflation risk more on business plans and higher goals.
How to protect your business from inflation?
While inflation presents challenges to small business owners, there are ways to avoid its worst effects. Here are four tips to protect your business from inflation.
1. Make changes and stay positive
Regardless of when you are reading this, the challenges your small business faced even six months ago may be very different from today. To stay afloat during any period of high inflation, you may want to raise prices and save as much as possible.
Instead of raising prices across the board, try to focus on price increases based on specific supply disruptions. This will damage your relationship less with the customer, as they may know more about your decision making process.
Some companies, such as food and energy-business, will be more sensitive to inflation, while others that work in the workplace may be less risky. Analyze where you really want to raise the price and do so.
While it is important to adapt to changing economic conditions and change prices when necessary like thetradebuzz.com does, keep in mind that rising inflation is not permanent, and staying flexible can work for your benefit in the end.
2. Manage your finances properly
In times of inflation, keeping a large amount of money around can be damaging. As inflation rises, the purchasing power of your money may decrease. Consider investing this money to increase market value.
It’s a good idea to consult with a financial advisor to find out which one is best for your situation. Bottom line: keep a minimum balance in your account to manage your purchasing power.
3. Manage and expand your network
Supply chain disruptions and concerns about them are fueling price hikes. Protecting your inventory is one of the most important ways to protect your business from the worst of the worst.
This requires extra effort on your part to negotiate with your suppliers to know which products are most in demand. This can help you anticipate future supply challenges and prepare better. If possible, enter into long-term contracts with your suppliers to stabilize your supplies and prices.
It’s a good idea to expand your network so you have sourcing options when supply chain issues affect your inventory. Building your network takes more time and effort in the short term, but it will be well worth it and save you time and stress in the future.
4. Focus on the future
Establishing your supplier network, adjusting your prices, and carefully watching your cash flow takes time and effort, and takes time away from the time you can spend planning the future of your business.
However, it’s important not to lose sight of your long-term business goals. Free money is temporary, but your business is (hopefully) forever. Continue to take proactive steps to grow and expand your company, and never lose sight of your future goals.
Although inflation is negative and presents unique challenges for running a small business, it won’t be your whole story. When looking at long-term growth, there are ways to avoid the worst effects of inflation.