The inflation rate in January 2022 was 7.5%, the highest since February 1982. Inflation does not automatically endanger every business or affect all businesses equally. Yet, it can affect everything from profitability to customer satisfaction. Supply chain problems due to inflation can make it hard or impossible to manufacture certain products. It can also prevent businesses from getting enough inventory to meet customer demand. Increased expenses can also reduce cash flow and make it more difficult to achieve profitability. Raise your prices, and you may lose customers. As their cost of living rises, your employees may begin to demand higher pay. Although inflation presents many challenges, there are ways to mitigate its worst effects. Here are 5 ways you can protect your business from inflation:
1. Control business spending
The best way to control spending is by increasing spending visibility. It enables you to thoroughly see where and how money is spent. During an inflationary time, it’s important to be able to see how much money is spent by a business on a regular basis. You can use data on your business expenses to spend strategically. Consider where you spend the most money. Is that the area you want to invest in the most, or is it something you can cut? What are the areas of spending that you refuse to decrease at any cost? What has the highest and the lowest ROI?
Take a look at all that data and use it to help your team make smart decisions. This will not only benefit your company now but also in the future.
2. Raise the prices of your business
When inflation is rising, one of the best ways to keep a good cash flow and stay profitable is to raise your prices. There’s a good chance that you’ve already made changes to pricing in the last year. If you haven’t, now might be the time to do so.
Remember that increasing prices across the board isn’t always the best strategy. By doing so, you risk upsetting loyal consumers and alienating new ones. Instead, start by raising the price of your most unique or appealing products. Then, make small strategic changes to the prices of other common products. Here are a few ideas for attracting clients while remaining competitive:
- Bundle a lot of different products together at a higher price point and give a free gift with the purchase. You can also offer longer warranties or make up for the higher prices with cheaper or free shipping.
- Invest in your customer service team. Customer service is critical to your business’ success because it retains customers and extracts more value from them.
- Change your marketing strategies. You might have to change the way a product is marketed to make it seem like it’s worth the extra money.
3. Apply for a business loan
A company loan might help you if you need more working capital to meet client demand. Almost half (45 percent) of business owners polled in the Small Business Index have taken out a loan to deal with inflation in the last year. Taking out a loan when inflation is going up can be a good thing. If inflation persists, you may be able to pay back your debts using less expensive capital.
You can put the loan towards expenses or projects that will move you forward and improve your bottom line, which may include:
- Purchasing inventory in bulk to meet client demand
- Hiring more staff to keep up with expanding business
- Increasing marketing efforts to get new customers
- Investing in technology or equipment that makes operations easier
4. Reduce your business expenses
Another method of combating inflation is to lower your business’s overhead and variable expenses. The lower your expenses, the more money you have to devote toward:
- Refilling goods
- Improving your client experience
- Saving for emergencies
Consider the value they contribute to your organization as you assess your expenses. Try not to cut costs that are important for your employees’ health or customer happiness. Here are a few ideas for lowering your business expenses:
- You transfer your offices to a less expensive location or sublet a part of your premises.
- You can cut low-return marketing channels and focus on low-cost, high-impact techniques like social media campaigns and email promos.
- You can refinance one of your loans to save on interest charges.
- You may cancel any business memberships that you aren’t using.
You should also make sure that any business debt is well managed. You can handle your debts on your own, with the help of a business partner, or with the assistance of a trusted counselor. You can also seek the aid of a credit counselor and enroll in a debt management program. A good debt management plan can also help you on an individual level to, say, for example, eliminate payday loan debt.
5. Work to improve staff retention
Without good employee retention measures, you could lose valuable employees and may not be able to meet customer needs. Employees in the United States are resigning at an all-time high in the quest for better working conditions and salaries. Consider what you can provide your staff to retain them. Along with higher wages, most employees today may also want more flexible hours, better employee benefits, and more stable jobs. Try the following to improve staff retention:
- Find out what your employees want the most by conducting a survey.
- Rethink your compensation structure in terms of equity and competitiveness.
- Introduce benefits in addition to health insurance. Consider things like wellness stipends or flexible paid time off.
- People should be able to work more flexible hours or have more say in their shifts.
- Put your employees’ overall well-being first. Businesses should provide mental health resources, such as employee help programs. They should also acknowledge employees for their efforts and push for a good work-life balance.