How to Inflation-Proof Your Small Business Rising prices are a growing concern for business owners right now. These strategies can help you guide your business through uncertainty.
By Sean Boyle Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
Are you worried about the dramatic ways the market is suffering from inflation?
The rapid increase in price for everything has put small-scale businesses in a tight spot. Not only are they losing customers, but they also need to buy the raw materials or provide services at a much higher rate than before. As a result, many businesses had to shut down since they couldn't live up to the inflation rate.
The rising cost of everything is a subject of concern, but it is a natural process every economic market must go through. Therefore, the best way is to battle it instead of running away from the effects of inflation. As a small-scale business owner, you must ensure your business is entirely immune from inflation and its consequences.
The following article will introduce you to the top ways through which your small-scale business can survive the harsh reality of inflation with ease.
Related: 3 Strategies To Protect Your Business From Inflation
How can inflation affect a business?
Before discussing how to fight inflation's impacts on your business, don't you think you should be aware of how inflation can affect your business?
1. It establishes an imbalance between rich and poor
In times of inflation, the difference between the rich and poor further increases and can severely impact your business, especially if the poor and middle economic sections are your primary customer base. Due to the inflation rates, they won't be able to buy products from your business, resulting in a sharp decline in sales and revenues.
2. You won't be able to have the same vendors
After working with the same vendors for months or years, it can be difficult for you to find new ones in the market. Inflation will force you to work with new vendors due to economic instability. For example, if you deal in a retail business, you must find vendors selling the raw materials cheaper to avoid excess expenses during inflation.
3. The stock market is negatively impacted
One of the significant impacts of inflation is on the stock market. It is not guaranteed there will be a rise in the prices of the shares, but most times, it suffers badly. This is why you need to make your business immune to the impacts of inflation on the stock market.
4. A recession is a common expectation
Inflation is directly associated with recession. In most cases, it can easily lead to the loss of unemployment and a period of recession. As a result, your business will suffer the most. People won't be able to buy your products or avail of the services. You might have to let go of some employees for budget management.
Work on your pricing power and strengthen it further
Pricing power is a marketing concept where you determine the impact the change in the price of services or products can have on their demand. For example, gold prices are increasing significantly, but the demand for gold is not decreasing. It means the pricing power of this material is relatively high, and the gold businesses can easily survive the inflation.
So, if you want to make your business immune to market inflation, you should strengthen the pricing power. Any change in the price should not have any negative impact on the demand cycle of the product or service whatsoever.
Make your business plans more visible
One of the many reasons businesses cannot survive inflation is the lack of transparency between the business plans and the stakeholders or the employees.
Therefore, educate the employees or stakeholders about your business's health, market standing, etc. Unless and until they are aware of everything, it won't be possible for you to work on protecting your business from inflation.
Cut down unnecessary overhead costs
Many businesses fail to realize that about 30% of their overall expenses go into nothing. For example, when a business outsources the manufacturing department to a third party, it unnecessarily invests money in transportation because several third-party manufacturing companies also offer transportation services.
Therefore, all a business needs to do is research and invest some more time before partnering up with the outsourcing company.
Related: How to Turn Inflation and Recession into Your Largest Business Opportunity
Maintain the cash flows
Often you make your business vulnerable by overlooking the cash inflows. If you do not maintain a proper ledger on how much you are gaining per month and how much you are left with after completing all the debts, bill payments, and giving out the payrolls, you won't be able to maintain the cash flows.
This can cause severe problems during inflation because you won't be able to change the business plans by taking references from your previous cash inflows.
So, tracking the amounts you earn per day, the changes in the profit margins and so on will help you understand how to deal with inflation if the moment arises. After all, inflation can disrupt the economy, so your cash flow can decrease by 70% to 80%.
Explore inflationary scenarios
You might be using the concept of future analysis for business expansion, understanding the market scenario, etc. But you do not implement the same concept for describing scenarios that might happen once there is inflation.
This is where analysis, forecasting and pre-panning come into play. If you can analyze your business and out the statistics in an inflation model, you will be able to get the outcomes. Based on the obtained results, you can easily make alternate plans to deal with any adverse situation during inflation.
Investment can help you hedge inflation
Now, there are many ways in which you can invest. But not all of them are immune to inflation. For example, if you invest only in the stock market, you won't be sure if inflation will lead to a fall in the price of the shares or not. Therefore, the best idea will be to divide your assets and invest in multiple ways. For example, you can use the forex market, NFT trading, cryptocurrencies and the stock market to create a distributed but balanced system of investment.
