It seems these days that the word inflation is everywhere. Pundits describe in detail how we arrived here, lots of finger pointing across the political aisles, and enough acronyms and fancy terms to make your head spin. Who has time to wade through all this rhetoric?
The problem is that all this talk is geared towards whole industries and large corporations. It caters to their needs and those of the investment firms that underwrite them. The problem is that it doesn’t speak to your small business.
So here's 5 things you can learn from what the big guys are doing that you can also apply to your small business:
Consolidate services and resources to reduce costs
Do you pay for backup, virus and VPN services from different companies? If so, it is time to consolidate them. Alternatively, work with a sales rep who specializes in online services who can bundle products together and reduce your overall cost. Do you use multiple payment processors, different accounts, and too many delivery services for shipping? Square and Shopify can now do that all under one roof: less paperwork, less management, and lower costs.
Also consider modernizing important non-tech services. For example, do you pay for multiple subscriptions for journals/magazines? Why not transition to digital versions and use a kindle? This will save you money and simplify expense reporting.
Consider the office space you may be renting, conference/fair booths you are paying for, and the off-site storage you are using. Do you need all that space? Can you sublet some of it? Have you considered dropping conferences/fairs that aren't profitable? Can you move what you store off-site back in-house?
These are all areas where you can consolidate and thereby reduce costs.
Make an effort to retain your staff
It may be tempting to let some employees go when times are tough. Don't. Instead, you should make every effort to keep your talent. This makes you less of a horrible boss, and it will benefit them as much as you during inflationary periods.
Yes, your employees will be expecting higher wages, and they may be looking elsewhere. But if you are willing to pay more, then you are more likely to retain them. In tight niche markets where competition for talent is high, retention keeps your competition at a disadvantage; but losing that highly qualified employee is not just a loss for you but also a net gain for a competitor.
Now consider that recruiting, hiring, and training new talent is even more expensive for you now that your dollar doesn't go as far. You want to avoid those expenses. Keep your employees employed, well paid, and happy. Good leadership is what employees seek when times are difficult, so this builds long-term loyalty.
Stock Up
You may be struggling a bit right now, but so are your suppliers. So this is the perfect time to stock up on equipment, supplies and inventory. Whereas your competition is likely reducing their purchasing, you have an opportunity to fill that void for your suppliers.
Not only will you be able to strike good deals, but the earlier you do this, the better. With inflation, prices for supplies also rises over time, so if you can lock in a lower price early, then you are pre-empting that increase. You can purchase more now than you will be able to purchase later.
Having extra inventory makes you better able to continue producing while your competition may be struggling to fulfill orders. customers will see your business as the place to find the products they can't get from the competition. It's a win for you, your suppliers and your customers.
Incentivize early payment of invoices
Delinquencies on payments increase when times are tough. So this is a good time to offer incentives for early payment. For example, if you are working on a commission or honorarium, then offer a discount if your customer pays up front for the work. This increases your cash flow, which helps you pay your expenses (see above). Think of it as a re-investment in your own business, creating more growth while your competition struggles.
Settling debts also builds goodwill and trust with your customers. There is nothing more grating on a business relationship than an long-overdue bill. Once your customer is all paid up, you have new opportunities to build on that relationship. If they are also purchasing from one of your competitors that they still ow money to, they will view you more favorably during that time.
This influx of cash flow could have a nice side-benefit as well. Institutions like banks, prefer to see greater cash flow when they lend funds. This cashflow increases the amount that you may be able to borrow. This type of planning does require careful planning, but that is what a good accountant is for.
Take out a loan
Many of the strategies above will have costs associated with them. Purchasing new technology and services is going to increase expenses, and so will retaining your employees. So you could consider borrowing money instead of paying for it out of pocket. This is what large companies do during inflationary periods: they borrow.
Alternately, you can take out a line of credit. This has the benefit of only indebting you for the actual expenses – you only take out what you need. This is similar to using a credit card, except that the interest rate is fixed and not variable so it is more similar to a loan.
The key to taking out that loan or line of credit, is to do this early, so that you can lock in that low interest rate. Business debt then becomes a hedge against rising inflation, as described in the Forbes article How To Use A Business Loan To Combat Inflation.
This strategy, of course, requires expert advising, from your accountant and possibly others who can help steer you through this. However, this is what large businesses and corporations do, so there's no reason you can't use the same strategies for your small business.
P.S. This article is an abridged version of the full article 5 Things You Can Do to Fight Inflation, on my blog site, which also includes a bonus as well, so check it out!