Life as a small business owner is never easy. But the last couple of years has brought obstacles no one saw coming. Finally, as the challenges brought forth by the pandemic started to wane, new burdens emerged. Supply chain issues and record levels of inflation have business owners scratching their heads, wondering if this run of bad luck will ever end.
While it’s not in the nature of most entrepreneurs to give up, meeting the challenges of inflation head-on takes some know-how. Here are six tips to help your small business fight rising inflation in the coming months.
1. Reduce expenses.
While reducing expenses may sound like generic advice, during periods of inflation, it’s crucial. As prices rise, small business owners need to maximize their spending power. Now is the time to dive deep into your books and find ways to trim excess spending wherever possible.
One way to accomplish this is to create an entirely new budget. Most businesses tweak the previous year’s budget to accommodate future plans and goals. However, starting from scratch allows you to create a budget that eliminates the “nice to haves” and instead focuses only on what is necessary.
2. Stock up on inventory.
Depending on your business, you may carry an inventory. If you’re a manufacturer and expect prices to continue to climb, it may be wise to increase your inventory of raw materials. This strategy allows you to purchase more supplies now before prices jump down the road – giving you a better margin on sales.
On the other hand, if you’re a retailer, you might want to limit your inventory. If consumer demand is down due to rising prices, getting stuck with inventory you cannot move could cause even greater financial challenges.
3. Improve productivity.
Now may be the perfect time to improve your productivity by investing in greater automation within your business. While interest rates are rising, loan rates are still very low overall. You can use this as an opportunity to finance more efficient machinery or upgrade your digital footprint.
4. Raise prices…creatively.
No one likes to pay more for the same product or service. While most people understand that prices are rising across the board, research your industry and customer base first. Try to determine how susceptible your product or service is to price increases and what the effect will be on your bottom line if you lose some customers.
A better strategy for raising prices is to find new opportunities within your business. For example, you might look to bundle certain products or services that offer a greater value for your customers but also allow you to net higher profits. Or a subscription model may offer recurring revenue that is greater than traditional sales. These options could help you address rising costs and bring in additional revenue without the need to alter your regular pricing.
5. Re-evaluate labor options.
Employee costs are typically a business’ largest ongoing expense. One strategy employers can implement to maintain operational efficiency and reduce labor costs is to outsource projects. Hiring specialists on a contractual basis and paying them via 1099 could allow your business to accomplish more without higher overhead costs.
6. Consider a business line of credit.
Prices are going up, and not only for the consumer. Your business costs are rising as well – everything from rent, fuel, materials, and supplies. It’s hard for most small business owners to determine where prices will be even a few months from now.
One way to maintain cash flow and keep your business running smoothly is with a business line of credit. While interest rates are rising, overall rates remain very affordable. Similar to a credit card, a business line of credit gives business owners access to a predetermined amount of funds. If you never need to use the money, you owe nothing. But if the need arises, the funds are there for supplies, inventory, payroll, etc. Think of a business line of credit as a financial lifeline for your organization should you ever need it.
We’re Here to Help!
While economists argue whether the uptick in inflation is transitory or long-term, small business owners don’t have the luxury of waiting to find out. Being prepared with a business line of credit or low-rate credit card offers the flexibility necessary to manage your business expenses in this unpredictable economy.
If you’re interested in learning how you can use a business line of credit as a financial lifeline or how to consolidate debt with a lower-rate business credit card, we’re ready to help. Please stop by any of our convenient branch locations or call 248-322-9800 extension 5 to speak with a team member today.
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