In Europe, the annual inflation rate was 9.9% in September 2022, 9.1% in August, and 3.4% a year earlier. Most small business owners have never had to contend with such a significant change in the cost of goods and labor necessary to sustain their businesses. Small business owners consequently have to deal with quickly increasing costs and shrinking profit margins, and in some cases, inflation jeopardizes the long-term viability of their enterprises.
Starting a business during inflation is risky and scary at the same time, as there are high chances of you losing the money you have invested.
These days, there are numerous news stories about inflation, supply shortages, price increases, and stock market crashes, making it more crucial than ever to protect your small business. Prices are rising everywhere, so your company’s future may suffer if you don’t take appropriate precautions.
Keep reading this article to find out 4 strategies to help small businesses combat inflation.
How Does Inflation Affect Small Businesses?
Small businesses are being compelled to scrutinize their spending more carefully due to rising inflation, labor issues, and supply chain disruptions.
Due to the constant price increases caused by inflation, small businesses are losing a lot of customers. As a result, unlike large corporations with substantial capital, they are unable to afford to keep their prices the same without incurring losses.
So what happens to small businesses during inflation?
- The owners have to deal with rising staff expenditures.
- Customers won’t be able to purchase as many items or services as they once could.
- The cost of running your business might increase.
- The owners would have to pay more for raw goods.
- Businesses may be forced to shut down if proper preventive measures do not combat inflation.
How Can Small Businesses Survive Inflation?
1. Rework Your Pricing
The challenges that inflation presents must be overcome if your small business is to survive. If costs are constantly on the rise, you might want to reconsider your prices.
Instead of increasing prices across the board, analyze specific supply problems and hike prices accordingly. Inflation is a tough time for all business owners and consumers, so there is a high chance that your customers might understand the need to change prices.
2. Invest Your Money
When inflation is high, having a lot of cash on hand could be risky, and your cash reserves could lose purchasing power. Instead, think about making stock market investments to keep up with the rate of price increases.
When interest rates start to rise, make it a habit to add money into stocks with attractive interest prospects and saving accounts. Other than the stock market, you might also want to consider bond funds because the returns, no matter how minimal, will start to matter. All money invested smartly is better than money lying around idle.
3. Apply Automation to your Business
If you think automation is only for small businesses, think again. One of the best ways to cut costs is to minimize the use of human labor. From customer care to managing social media accounts, many software and tools might be helpful for you as a business owner to automate monotonous chores.
Automate as many tasks as you can in your daily work. You will be surprised at how much money you can save. Automation also enhances customer service by reducing mistakes and streamlining procedures. In the eyes of the customer, automation boosts service speed and accuracy, which is a huge plus.
4. Have Passive Income Resources
Having multiple sources of revenue or discovering passive cash streams are the two methods for small businesses to survive the inflation period. Suppose one aspect or channel of your small business fails, you can rely on others and never feel like you are stuck in a hopeless place with no means of income.
Investing is one way to avoid relying solely on your company’s profits.
However, there are other means of generating passive income besides investing. For example, you have a clothing business and you sell both men’s and women’s clothes. You can start a YouTube channel and instruct viewers on how to choose and dress appropriately for a specific event to earn passive income. You can even advertise your product online through social media.
Everyone feels the effects of inflation, and it can be frightening to consider your company’s future in these uncertain times, particularly if you own a small business. The best you can do as an owner is to take the necessary precautions to be ready for any challenging situation that may arise because neither what is happening nor what is about to happen is under anyone’s control.