8 ways you can protect your small business in times of high inflation02/05/2023
There are some signs that high inflation might be starting to abate. But business owners should remember, this doesn’t imply that costs are finally coming down – just that they are no longer rising quite as quickly.
This persistent high inflation (which remains well above the Bank of England’s 2% target) can be problematic for many businesses because it makes their suppliers more expensive, and puts them in an awkward position: they have to either swallow the higher costs (and risk damaging their profit margin) or pass the costs on to consumers (and risk damaging their sales). When you add in the fact that many customers are already feeling the pinch financially, it makes it even more difficult.
Despite these issues, acting intelligently and proactively can help your business not only weather the storm of high inflation, but come out the other side even stronger. Here are eight techniques you can use that will give you a lead on the competition:
1. Conduct a price analysis
Examining your company’s profitability is a good place to start. Make a profit and loss statement to see how the inflation rate has impacted your bottom line.
Examining your pricing structure may be necessary if you notice a decline in profits. Check out what others in your industry are charging to see if you’re overcharging or undercharging.
There may be room for a price increase if you’re currently competing at the low end of the market. You need not lower your rates if they are already on the upper end; instead, differentiate yourself from the competition by providing superior features or services.
2. Employ intelligent pricing methods
Smart pricing methods might help you increase costs with less of an impact on your consumer base. Although consumers’ discretionary spending has decreased, they continue to purchase necessities. Pricing strategies based on consumer psychology aid in making a selection.
Customers will perceive more value in their purchase if you use price anchoring, which involves offering a high ‘initial’ price for an item before presenting them with their final, frequently lowered price.
To get clients to spend more, you can offer discounted bundles of products or services rather than charging them separately. While mastering a wide variety of approaches may seem daunting, the rewards for doing so can be substantial.
3. Drive for greater levels of efficiency
Instead of increasing prices, you might try reducing expenses to boost revenues without impacting customers’ wallets.
How efficient is your company currently? The old adage goes something like this: “Work smarter, not harder.” So, look for ways to streamline processes, automate routines, and combine your tools. You may expect to reap the benefits of these cost savings for a very long time, even if inflation eventually falls.
4. Keep tabs on your outstanding bills
When inflation is high, borrowing money is riskier since interest rates tend to climb in tandem with price increases. The amount you will have to pay back may increase as interest rates do. Make sure you can afford to keep up with your loan payments even if your interest rate increases.
5. Master your cash flow
There has never been a time when knowing and checking your cashflow forecast was more crucial. Even the most trusted clients may be hesitant to pay during times of high inflation, and you may discover that your own suppliers are moving more quickly than ever to collect past-due payments.
In order to maintain a steady monthly cash flow, you may need to be more stringent with your own invoicing and implement an automated system for following up late payers.
6. Pay attention to your staff
It’s not only you, the boss, who is presumably worried about money; your employees are sure to feel the same way. Having to hire new people and train them can be expensive, so it’s in your best interest to keep your current staff happy and engaged.
Taking the time to hear them out and responding with solutions like telecommuting, more flexible hours, higher compensation, or better benefits can make a huge difference.
7. Make the most of your local community
When things are tough, it’s important to lean on your community for assistance. This group of people may be in your immediate vicinity, or they may span the globe due to a common bond. In any case, make an effort to learn about your clientele and show appreciation.
Loyalty programmes and in-store specials are two ways to keep customers coming back. To expand your customer base, you can also network with companies that offer complementary products or services.
8. Lessen the dangers in your supplier chain
There is excellent reason for firms to stick with the same suppliers over and over. There may be a period of trial and error involved. However, dependable suppliers may feel the effects of inflation more acutely.
Your company can save a lot of money on transportation and import fees by sourcing from regional vendors. Having backup supply chains for all of your primary materials will make your firm more resilient, even if you don’t end up switching out your current suppliers.
At JW Hinks, we understand the challenges that high inflation can pose for business of all sizes. If you are struggling to see the light at the end of the tunnel, call us on 0121 456 0190. Our professional and experienced team can help you work to eliminate the negative impact of high inflation on your business and ensure that you are doing everything in your power to remain competitive.