The inflation rate hasn’t been this high since 1981. Prices of rent, food, supplies and gas are going up — all cost hikes small business owners are experiencing firsthand.
Not surprisingly, inflation is a concern for one-third of small business owners, according to a new survey by nonprofit business organization SCORE. Of those business owners, 30.5% say they’re extremely worried about it, with another 33.8% noting they’re “concerned and keeping an eye on things.”
Here are a few ways to lessen the blow on your small business.
1. Reduce Expenses
Think about which expenses are expendable.
- Can you reduce travel expenses?
- Do you have subscriptions or maintenance plans you aren’t using?
- Can you substitute supplies or materials for less costly products?
- If you have an office building, can you cut expenses there?
- If not currently implemented, would a hybrid or all-remote work environment work well for your business?
Re-evaluate your budget and see where you have some flexibility to downsize.
Cody Candee, founder and CEO of Bounce, says his company uses return on investment as its metric, prioritizing spending on line items that drive the overall company strategy by identifying profit and loss, cost structure, operations and various other models to get the most out of each dollar spent.
Candee notes, “In addition, we eliminate costs that do not help us reach our overall company goal, such as certain promotions or unneeded infrastructure upgrades. In prioritizing our spending, we can cut costs, combat inflation and still focus on long-term goals.”
2. Raise Prices Strategically
Increasing price is another way many small business owners are contending with inflation. Mark Valderrama, owner and CEO of Aquarium Store Depot, agrees and suggests businesses communicate pricing increases to their customers.
“Create an official announcement for your store, website or Facebook page,” says Valderrama.
“It may state something along the lines of, ‘We take pleasure in our low prices and have maintained them for years, but our costs have increased across the board.’”
Valderrama also says you should let customers know when your prices will change. “This provides them with sufficient time to purchase at the present price. You might even market it as a ‘last chance sale’ to entice them to act.”
You want to convey that you “understand the impact on your consumer and are doing everything possible to alleviate their stress.”
“Your objective is to retain their loyalty,” Valderrama adds, “and demonstrating that you care will go a long way toward accomplishing this.”
3. Improve Processes
Thanks to increased labor costs and staffing shortages, the need to improve business processes has arguably never been so important. This could mean focusing on technology and automation that can simplify operations. Or it could mean finding ways to increase employee productivity.
Business coach Lattice Hudson says, “A clear business plan and a focus on methods to achieve more with less are excellent approaches to save costs. Consider what you can do to enhance efficiency if you still utilize numerous manual procedures for everyday chores, such as bookkeeping, invoicing or marketing.”
Hudson suggests, “Begin by writing down all of the business operations you perform each week. It’s easier to find opportunities for improvement when you can map out a procedure step by step.”
“Examine how you and your staff use your time each day. Even saving 3-5 hours each week will help you counteract inflation,” says Hudson.
4. Preserve Existing Equipment
For small business owners on a budget, you might consider making the best of what you already have instead of focusing on new technology to reduce expenses.
Photographer Can Burak Bizer says that he has put purchases on hold due to skyrocketing equipment prices. “We see this with cameras, lenses, drones, etc.,” he says.
Additionally, Can Burak Bizer notes the price increases in version updates as well as electronics in particular. “So we are taking good care of old equipment, selling some to create funding and mainly putting our purchases on hold for a while.”
5. Tap Into Financing
Whether you’re looking to stock up on inventory or need a boost in cash flow, consider business financing. For instance, a business line of credit is a great option to have in your back pocket when emergencies arise or you find a great fire sale you want to jump on. Alternatively, if you need fast funds for a fleeting one-time need, a short-term loan may be a better option.
Michael Dadashi, co-founder and CEO of Infinite Recovery, suggests invoice financing as another avenue. “Turn your past invoices into a cash influx while your competitors are stuck in the mud with past due payments. It could be the ideal way to pay off high-interest loans.”
On another note, “If you have debt with variable interest rates, you should consider refinancing to a fixed rate to reduce your risk,” suggests Dadashi.
“Make use of your contacts to assist you in locating reliable financial advice,” Dadashi advises and suggests reaching out to business groups, such as the nonprofit SCORE, for assistance.
In need of business financing?
6. Use Incentive-Based Spending
Kenny Kline, president of BarbBend and MBA graduate from Columbia Business School, says business owners should, “Consider a controllable choice, such as a credit card with incentive spending, as the Federal Reserve prepares to hike interest rates for the first time in 3 years.”
Kline says, “One of your objectives is to mitigate the impact of rising interest rates, and cashback rewards are an easy method to accomplish this.”
He goes on to say, “If your firm relies on employee travel, consider switching to a travel rewards credit card. If you can keep your credit card debt at zero with an incentive credit card, you’ll earn 3 rapid wins: cash back, interest-free borrowing and a cash infusion at a vital point.”
7. Establish Partnerships
Establishing partnerships with companies that complement yours could help you combat inflation by expanding your brand recognition and your audience in turn. Marketing to a new segment of clientele this way can offer you opportunities to share advertising costs with your partner as well as create another potential revenue stream.
For instance, an event planner, a caterer and a photographer might market their services together online, in print or at expo events, with engaged couples or corporate groups as their focus.
During the height of the pandemic, “several small companies collaborated with other local businesses to supply mutually beneficial products and services,” notes business coach Lattice Hudson.
In this vein, Hudson suggests business owners “Consider reinstating old partnerships or exploring new avenues to expand those ties to manage growing expenses while creating income for you and your partner firms.”
8. Bulk Order Supplies
Many business owners buy products and supplies in bulk to avoid multiple purchases throughout the year when they’re uncertain where pricing will be in later months.
However, take heed of the flip side. Marc Bromhall, founder of Surf Gear Lab, says this about his company: “We took the view that inflation would only get worse in the first 6 months of 2022. With this in mind, we bought 70% more stock than we normally would at the beginning of the year to capitalize on cheaper prices. This has left us exposed financially as we’re now sitting on uncomfortably high stock levels, which places pressure on our sales over the coming months.”
Thankfully Bromhall notes that his company has more than enough space in its warehouse to accommodate the additional stock.
9. Market to the Right Crowd
Another way to battle inflation is to focus your marketing spend on where you’ll see the highest return on investment.
That’s what Peter King, co-founder of Authority Builders, has started doing. “Increasing the price of our services is not sufficient to match the rise in costs, and we are focusing on driving sales up. We are now taking digital marketing more seriously than ever, making our services reach the perfect target audience at a reasonable cost.”
Who are you targeting with your marketing efforts? Is your marketing budget making the greatest impact it can?
Research shows it can cost 6-7 times more to acquire new customers than keep existing ones. So why not focus on fostering the relationship you have with your current base. Keep them coming back and spreading the word about your brand. The added benefit? Word-of-mouth referrals are valuable social proof that drive sales and lead to new customer acquisition.