The United States inflation rate has skyrocketed to 8.5% over 2021, leaving many business owners looking for strategies to minimize the impact on daily operating costs. Small businesses have especially taken a 1-2 hit, weathering the effects of the Covid-19 pandemic followed by rising costs. While it may not be possible to completely recession-proof your business, here are some steps you can take to set your business up for success.
1. Assess supply and demand, and price accordingly
As your cost for goods increases, it is important to have a look at the demands for your goods or services and adjust prices accordingly. If you’re a jeweler, you know that the cost of gold has risen significantly, but the demand has not slowed. You should be able to change your pricing structure to meet the demand, while maintaining a reasonable profit margin. In marketing, this is considered a high pricing power and the increase in pricing should not negatively impact your business.
2. Add a level of transparency to your business plan
It’s no secret that business owners wear a lot of hats and have a full plate when it comes to juggling a business plan, but it’s important to keep employees and stakeholders in the loop. Discussing your business’ performance and market standing with your team builds trust and allows for collaboration and motivation to reach new sales goals. You can also equip employees with strategies to cut overhead costs, offer upgraded services, and report any accounting issues that may arise.
3. Decrease excessive overhead costs
It’s said that about 30% of overhead expenses go to waste. One area to consider looking at is outsourcing manufacturing or other services. Many businesses outsource this work, paying a premium for unnecessary packaging and shipping. It’s important to research all avenues before agreeing to an outsourcing contract. Consider what you may be able to do in-house to cut these costs.
4. Keep track of cash flows
You should document every transaction within your business. This may seem like common sense, but many business owners could improve their bookkeeping skills. You should be able to sit down with all figures; how much profit you make each month, how much you pay in bills, what your profit margins are, and how much you’re spending on payroll. If your numbers aren’t organized, this will cause you a massive headache should you need you change your business model due to inflation.
While investing may not be inflation-proof, it is worth considering distributing assets through a few different avenues. The stock market may take a hit, so you may also consider the use of cryptocurrency or forex trading.
While inflation may pose challenges for your business, having a good beat on your business will help you navigate what lies ahead.