How to Soften the Impact of Inflation on Your Small Business

Author: George Myers, Vice President, Senior Business Development Officer 04/21/2023

Inflation is expected to continue to rise and small businesses will take the brunt of it. This increasing economic pressure can take a toll on your business’ cash flow and bottom line. Rising inflation may be outside of your control, but there are smart adjustments you can make to help your business coast through these adverse times.

Increase Prices the Right Way

With inflation on the rise, the cost of running your business will rise, too. In order to meet costs and still maintain a profit margin, you might consider raising the prices of your goods and services. As a small business, you greatly rely on your customer base’s support. Raising prices might not seem like a favorable option, but conducting some market research will inform you how much of a price adjustment is right for your business.

Research how much similar businesses are charging for their products or services. You may find that your price point is below the market average. If that is the case, you’re in luck. You can raise your prices without losing your competitive advantage. If customer relationships are the strong point of your business, you can still maintain those connections by sending a mass communication explaining your prices are going up due to inflation. Consider running a “last chance” promotion for your customers, encouraging them to take advantage of your business before the price increase.

Reevaluate How Your Business Operates

When there are many factors outside your control, having the way you do things set in stone can be detrimental to your business. Keeping parts of your business structure flexible will allow you to adapt in times of change and crisis.

Inflation can negatively impact the supply chain, delaying the materials your business depends on. Consider diversifying your vendors rather than relying on a single source to replenish your inventory and stock. This will lessen the likelihood of supply chain delays bringing your business to a halt.

With a good, thoughtful product strategy, you could release a new line of products to give your profit margin a boost. Navigate around supply chain shortages by pivoting to products that need materials that are more easily available. Another option is to focus more marketing resources on your products that are already successful. Lean into what you know works for your business while being ready to adjust whatever is holding your business back.

Review Your Business’ Finances

As economic conditions worsen, reviewing your business’ finances becomes more imperative. Your business expenses may fluctuate so you should evaluate where you can cut back on costs. There may be subscriptions that are costing you more than they are adding value back into your business. You may be able to negotiate with the vendor to get a lower rate.

Consult your financial advisor about other options for improving your business’ cash flow. You might apply for a company credit card that earns cash back on travel expenses or purchases from merchants you already frequently buy from. Opening a line of credit could allow you to stock up on inventory ahead of potential supply chain delays. Another way to keep more cash on hand would be to refinance or consolidate any debt you may have to get a lower monthly payment.

As a small business owner, it is in your best interest to stay informed about economic conditions. While many factors are outside of your control, with strategic decisions and a strong understanding of your business, you will have the ability to adjust the sails of your business to ride out a storm that might sink others. Talking with financial and business experts is a great way to prepare your business for rising inflation. To speak with an expert today, visit PlainsCapital.com.

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