3 Ways To Reduce Inflation's Impact On Your Small Business

According to the Q4 2021 Small Firm Index study conducted by the US Chamber of Commerce, 71% of owners indicate that rising costs have had a substantial impact on their business in the last year. And analysts think that this high inflation might endure for a long time.

According to Carolina Martinez, CEO of the California Association for Micro Enterprise Opportunity, or CAMEO, inflation can be difficult for small businesses, but the correct strategy, support, and resources can help them alleviate the difficulty.

Here are three strategies for mitigating the effects of inflation on your small business.

Raise Your Rates Correctly.

It may appear like raising prices is the "easy way out" of combating inflation, but this tactic might benefit your business more than you might believe.

"Survey the marketplace and check whether you are underpriced for your services or commodities," said Matt Sotir, Equitable Advisors' Northeast regional vice president, in an email.

"A landscaper customer recently looked at his competition and discovered he was 30% cheaper than most others in the region." "He was able to raise rates moderately without losing any clients," said Sotir, an investment advisor who deals with small-business owners and entrepreneurs.

If you do decide to raise your rates, there are innovative ways to connect with your customers that will benefit your company in the long term.

Jacqueline Snyder, co-founder of The Product Boss, a small-business coaching platform, suggests including your consumers in the narrative.

For example, "We're a tiny firm, and prices have gone up across the board." We've tried to keep it running like this for so long, but in order to survive — and we still value your business — we need to raise our pricing."

Snyder also proposes guiding your clients through price adjustments by conducting a "last-chance" promotion in which you inform them that your prices will rise owing to inflation on a specific date, but frame it as a deal. You are urging people to buy from you now at your cheaper pricing while simultaneously informing them of the price rises.

Improve Your Company's Operations

The high-inflation climate has compelled small-business owners to rethink the specifics of how their companies operate.

"Think about a well-planned expansion strategy or introducing other lines of items to boost your profit margins," Sotir said. These kinds of development prospects, he says, may assist improve sales, which can help cover fixed expenditures like rent or gear.

Snyder advises business owners to take stock of their current best-sellers and capitalize on them. She believes that if you lean into your bestsellers and attempt to sell more of them in more areas, you're not only locking in something you know is popular, but you can also start negotiating your pricing with manufacturers.

You should also have a few production backup plans in place in case of ongoing supply chain delays. Snyder claims that buying in quantity from specific providers, especially when you've negotiated cheaper costs, may lead to higher profit margins.

Examine Your Money And Consult With A Financial Counsellor.

Despite growing expenses, you may make use of options that banks are now giving to encourage spending, such as credit card perks and high-yield business savings accounts.

Brandon Reiter, CEO and creator of Skyview CFO, a virtual bookkeeping and financial services firm oriented toward small companies, advises using rewards-earning credit cards as often as possible (without overextending yourself).

Some credit cards, such as airline credit cards and cash-back credit cards, provide excellent benefits, especially if you travel frequently. As inflation grows, he advises against using a credit card that provides little value in return.

This is also an excellent time to explore debt consolidation, especially if your interest rates are high or fluctuating. If you can refinance a variable rate to a fixed rate, you reduce the risk of adjustable rates rising in the future, according to Sotir.

CAMEO's Martinez recommends that small-business owners work with outside advisors, turning to organizations that offer free or low-cost help with financial planning, such as your local Small Business Development Center, for assistance in identifying the best financial strategies for your business, especially during this difficult time.