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6 Strategies for Small Business Owners to Deal With Inflation
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Inflation rose 8.6% in May, the largest 12-month increase since 1981, according to the latest consumer price index from the U.S. Bureau of Labor Statistics.
“Inflation is impacting virtually everyone in this country daily right now, and business owners are no exception,” says Matt Schulz, LendingTree chief credit analyst. “So many businesses have tiny profit margins, meaning that even the smallest cost increases can make a big difference to their bottom line. And it looks like things aren’t getting better anytime soon.”
Here are some strategies small business owners can use to help deal with inflation.
6 ways small business owners can cope with inflation
No. 1: Take another look at your budget
“You can’t have a meaningful business plan if you don’t know how much money is coming in and going out of your business on a regular basis,” Schulz says. “Chances are, a lot of the assumptions you made about costs six months ago are now outdated.”
You’ll want to compare the costs of running your business pre-inflation to now. From there, you’ll see how much of a shift you’d need to make.
No. 2: Cut expenses
Reviewing your budget can help illuminate areas where you may have to cut back — but you can also look at it as prioritizing how you’re spending your business funds.
“They may not be easy choices, especially if higher expenses mean that you’ll have to put off hiring or expansion plans, or other goals,” says Schulz. “However, successful businesses can adapt when economic times get tough.”
No. 3: Look into automation
If your business can rely on automation at any stage, it could be a useful tool to look into, since it can reduce your business costs.
You might consider bringing sales online if they aren’t already — which can also help expand your potential pool of customers — or you might look into automation during the production process.
Like any convenience option, though, automation usually comes at a cost, so you’ll have to look at the rates to ensure it’s worth the switch.
No. 4: Consider raising prices
The other side of getting a budget to work is seeing if you can increase your earnings. Raising prices can go a long way in helping you make up losses due to inflation.
You should consider competitor pricing and how your customers might react to increases to see how a price raise could impact sales.
For example, a 20% increase probably won’t go over well if you run a business that primarily serves a middle-income customer base, as they’ll probably be dealing with issues like growing credit card debt due to inflation.
No. 5: Examine brand repositioning options
Branding can go a long way in shaping the kind of customer base that’s attracted to your business. If you’re willing and able to reposition your brand, so it caters to a customer base that can better align with your desired profit margins, this could help increase your overall profits and keep your business running smoothly.
Again, customer loyalty should be a factor in this decision. After all, you don’t want to reposition so much that you alienate your existing customers.
No. 6: Prioritize your most profitable products
Another way to potentially increase your profit margin is by prioritizing products that tend to make the most money per sale.
You might choose to focus your advertising budget on that top product, or feature it prominently on your website’s homepage to encourage sales. Conversely, if you have a product that doesn’t have a satisfactory profit margin, it might make sense to discontinue it, so you can better focus on those more profitable options.
Whatever methods you choose should align with the overall goals and vision of the business. After all, you want the business that survives high inflation to still be the one you set out to create.