How to Inflation-Proof Your Small Business

Opinions expressed by entrepreneur Contributors are their own.

Concerned about the dramatic way the market is suffering from inflation?

The rapid increase in the price of everything has put small businesses in a difficult position. Not only do you lose customers, but you also have to buy the raw materials or provide services at a much higher price than before. As a result, many companies had to close because they could not keep up with the rate of inflation.

The rising cost of everything is a concern, but it’s a natural process that every economic market must go through. So it’s best to fight it rather than run away from the effects of inflation. As a small business owner, you need to ensure that your business is completely immune to inflation and its consequences.

The following article will introduce you to the top ways your small business can weather the harsh reality of inflation with ease.

See also: 3 strategies to protect your business from inflation

How can inflation affect a company?

Before discussing how to combat the effects of inflation on your business, don’t you think you should be clear on how inflation can affect your business?

1. It creates an imbalance between rich and poor

In times of inflation, the gap between rich and poor continues to widen and can severely affect your business, especially if the poor and middle-class are your main customer base. Due to inflation rates, they cannot buy products from your company, resulting in a sharp drop in sales and revenue.

2. You cannot have the same providers

After working with the same vendors for months or years, you may find it difficult to find new ones in the market. Inflation will force you to work with new providers due to economic instability. For example, if you are in a retail store, you need to find vendors who sell the commodities cheaper to avoid excessive costs during inflation.

3. The stock market is negatively affected

One of the main effects of inflation affects the stock market. There’s no guarantee that stock prices will go up, but most of the time it suffers badly. Because of this, you need to make your business immune to the effects of inflation on the stock market.

4. A recession is a common expectation

Inflation is directly linked to recession. In most cases, this can easily lead to unemployment loss and a recession. Your company suffers the most from this. People won’t be able to buy your products or get the services. You may have to lay off some budget management staff.

Work on your pricing power and continue to strengthen it

Pricing power is a marketing concept where you determine how changing the price of a service or product can affect demand for it. For example, gold prices are increasing significantly, but the demand for gold is not decreasing. This means that the pricing power of this material is relatively high and gold companies can easily survive inflation.

So if you want to make your company immune to market inflation, you should strengthen pricing power. Any price change should not have any negative impact on the demand cycle of the product or service.

Make your business plans more visible

One of the many reasons companies fail to survive inflation is the lack of transparency between business plans and stakeholders or employees.

Therefore, inform the employees or stakeholders about the health, market position, etc. of your company. Until they know everything, you can’t work to protect your business from inflation.

Reduce unnecessary overhead costs

Many companies are unaware that around 30% of their total spend is wasted. For example, when a company outsources the manufacturing department to a third party, it invests money in transportation unnecessarily, since several third-party manufacturing companies also offer transportation services.

Therefore, a company just needs to research and invest a little more time before entering into a partnership with the outsourcing company.

See also: How to Turn Inflation and Recession into Your Biggest Business Opportunity

Maintain cash flows

You often leave your business vulnerable by overlooking the cash flows. If you don’t keep a proper ledger of how much you make each month and how much you’re left with after all debts, bill payments, and payroll processing are completed, you won’t be able to maintain cash flows.

This can cause serious problems during inflation as you cannot change business plans by referencing your past cash inflows.

So by tracking the amounts you earn per day, changes in profit margins, etc., you can better understand how to deal with inflation when the moment comes. Finally, inflation can disrupt the economy, causing your cash flow to drop by 70% to 80%.

Examine inflation scenarios

You may use the concept of future analysis for business expansion, understanding the market scenario, etc. However, you do not implement the same concept to describe scenarios that might happen if there is inflation.

This is where analysis, forecasting and pre-panning come into play. If you can analyze your business and evaluate the statistics in an inflation model, you will be able to get the results. Based on the results obtained, you can easily make alternative plans to cope with unfavorable situations during inflation.

Investing can help you hedge against inflation

Well, there are many ways in which you can invest. But not everyone is immune to inflation. For example, if you only invest in the stock market, you are not sure whether inflation will cause the stock price to fall or not. Therefore, it is best to split your wealth 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 investment system.

See also: 4 ways to protect your business from inflation

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