Solutions to Help Small Businesses Combat Inflation
Inflation is on the rise, and retailers feel the pain caused by price increases. Just as businesses are rebounding from the uncertainty of the pandemic, they now face another crisis. The economic challenges due to inflation affect the cost of goods, gas prices, food, and housing—no sector remains untouched. Inflation is at its highest level in 40 years while owners have increased the average selling price to the highest rates since 1974. Other problems result when inflation goes unchecked and concrete solutions are not forthcoming.
- It slows production and puts stress on the supply chain to deliver goods on schedule. This problem makes it difficult for retailers to acquire sufficient inventory to meet consumer demand.
- Retailers face cash flow problems since they must pay more for the same previously purchased goods and materials.
- Customers are turned-off by rising prices and may decide to shop elsewhere
- Employees want higher pay and more benefits while profits continually fall
Results of CNBC Online Survey
So, what do small business owners think about the economy? A recent CNBC Small Business Confidence online survey resulted in the following findings:
- Seventy-five percent of small business owners are experiencing a rise in supply costs
- Owners have begun passing rising costs to their customers
- Only 28 percent are confident the Federal Reserve can control inflation
- Two-thirds of businesses have problems due to employees testing positive for Covid
- Thirty-one percent cite inflation as the most significant risk to their business, supply chain disruptions
- (23 percent), Covid-19 (20 percent) and labor shortages (12 percent)
Actions Retailers Can Take Now
However, there are small-to-medium size companies implementing strategies to mitigate the impact of inflation on their companies.
Raise prices without upsetting customers. Start by checking the prices competitors are charging for the same or similar products and services you offer. Often retailers discover certain goods are priced less than competitors in their marketplace. This information is an opportunity to maintain cash flow by moderately rising prices. Be transparent and communicate with customers the reasons for the price increases. They are also dealing with increasing costs and should understand the decision is difficult but necessary.
- Sixty-three percent of businesses increased the price of goods and services.
- Rather than increase all prices, raise prices on the most desirable products.
- Offer exceptional customer service. Ask for feedback
Refinance Existing Debt. Businesses with high or variable interest rates may consider refinancing existing debt to limit the potential damage from rising rates. Since owners have many options, it can be beneficial to work with an outside financial advisor who can assist with planning a strategy. Many communities have small business development centers that offer free or low-cost assistance.
Apply for a business loan. The Chamber of Commerce Small Business Index Report notes that 45 percent of owners surveyed took out a loan in the past year because of inflation. While inflation may be high today, when it’s time to repay the loan, it will be with cheaper cash. Any borrowed funds should be directly reinvested into the business on projects that improve bottom line profits.
- Stock up on inventory to beat rising prices
- Purchase more efficient technology to increase productivity or security
- Hire new employees in anticipation of getting new business
Reduce Business Expenses. Often companies have overhead and variable expenses that can be trimmed when times get tough. When owners can reduce costs to free up cash to support more critical operations, it can help avoid a crisis. Review your marketing expenditures. Perhaps some channels deliver a better return on investment than those you currently use. Social media campaigns and email promotions are low-cost, high-impact marketing platforms.
Every retailer’s situation is unique. Dealing with inflation requires creative thinking and the willingness to seek assistance from organizations that can help your business remain strong and healthy.