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Navigate inflation to protect your small business assets

A bike shop owner reviewing his business assets.
Loretta Kilday Guest Author
Published at | Updated:

In an era of widespread inflation, safeguarding your small business assets has become increasingly crucial. With prices rising across the board, it is vital to implement appropriate measures to mitigate the potential impact on your bottom line.

Several strategies are available to combat inflation, each with advantages and disadvantages. One approach is to adjust your prices to reflect the increasing costs of goods and services. While this may help maintain your profitability, it could deter price-sensitive customers.

Alternatively, you can focus on reducing expenses wherever feasible. While this may lead to improved profits, it may also necessitate difficult personnel and inventory management decisions.

Below, we’ve outlined a few strategies to help your small business thrive through difficult times.

Maintain solid cash flow

Cash flow represents a momentary reflection of the business’s regular operations, and any situation where more money flows out than comes in indicates an issue.

Small and medium-sized businesses (SMBs) are typically more vulnerable to cash flow issues. To safeguard the value of their business, SMB owners can implement some measures to uphold healthy cash flow, including digital payment tools.

You can also take advantage of banking tools, such as credit card rewards and high-yield business savings accounts to maximize returns on your spending and improve cash flow.

Discover strategies to reduce expenses

Protecting your small business during inflation requires finding effective cost-cutting measures. Although challenging, it is crucial for your business’s survival. Various approaches can be taken to achieve this goal.

One effective method to cut costs without compromising quality is to enhance efficiency and streamline processes. This may involve adopting new technology or finding innovative ways to optimize operations without impacting product quality.

Investing in technology can significantly benefit small businesses by automating tasks. This improved efficiency and productivity can ultimately contribute to higher profitability.

Diversify your products and services

Evaluate your existing offerings and explore opportunities to expand your product line. Consider adding complementary products or bundled offers to give customers more choices.

This diversification increases customer retention during turbulent times and mitigates risks when approached strategically and with careful financial analysis.

Refine your supply chains

Expanding strategically or adding alternative lines of goods can boost your profit margins. Focusing on your best-selling products and increasing their distribution can help negotiate favorable pricing with manufacturers.

Reassess and optimize your business operations

Business owners sometimes need to make their operations more efficient and unwieldy during economic challenges. Reviewing your business operations and identifying areas where you can streamline processes is crucial to combating inflation.

Streamlining processes doesn’t have to mean downsizing. It could involve recognizing tasks that can be automated, allowing employees to allocate more time to customer interaction, and eliminating the need for additional staff during those periods. Embracing automation can increase efficiency and lead to cost savings.

Explore other cost-cutting strategies

Reduce expenses whenever possible and increase the prices of your products and services to maintain profit margins.

Gradually raising prices can help offset rising costs, but it’s essential to communicate openly with customers to minimize the impact and maintain customer satisfaction.

Remember, it’s critical to never compromise quality to keep prices low, as this may result in decreased sales. Strive for a balance that benefits you and your customers, ensuring a sustainable and successful business.

For businesses involved in manufacturing or outsourcing, seeking better deals on raw materials can help lower costs without compromising quality. Comparing prices from different suppliers, negotiating for the best possible rates, or taking advantage of bulk purchasing discounts through financing, can be effective cost-saving measures.

If feasible for your industry and customers, downsizing to a smaller space or transitioning to a fully remote setup can provide significant savings.

Additionally, exploring government initiatives such as employee retention credit can be advantageous.

Diversify your revenue streams 

Relying solely on a single revenue stream can make your business vulnerable to the impact of inflation. It is crucial to consider diversifying your revenue sources during inflationary periods as a safeguard.

Introducing additional products or services can attract new customers and retain existing ones. Offering product bundles or enhancing the value of benefits can increase perceived value and justify higher prices. Combining these strategies with price adjustments can effectively mitigate the impact of inflation.

Maintain your marketing efforts 

In times of financial constraints, it may be tempting to reduce your marketing budget to save costs. However, cutting back on marketing during inflationary periods is not advisable.

Competition intensifies when consumers are seeking ways to save money. By reducing marketing efforts, you risk losing potential customers to competitors actively promoting their products or services.

It is essential to continue to invest in marketing and employ strategies that attract new customers despite higher prices. Highlighting new products, emphasizing service quality, and offering special deals for new customers can help sustain and grow your business.

Manage your small business debt 

Small businesses must understand the implications of debt on their financial situation, especially during inflationary periods. If any of your business’s debts have variable interest rates, you are susceptible to the impact of inflation.

Governments typically raise interest rates in response to inflation, resulting in higher debt costs. This measure addresses inflation in the economy and prevents long-term high prices.

However, the raised interest rates require small businesses with debt to exercise extreme caution in managing their finances until rates decrease again.

Seek area-specific debt relief strategies to get out of your business debt effectively and quickly. For example, if you are located in Utah, you can search the web for debt relief Utah to get information that is specific to your area.

Also, try to avoid taking out more business loans during inflation.

Evaluate an exit strategy

Safeguarding the value of your business starts by assessing its monetary worth. Business brokers are reporting an increase in requests for business valuations. A business valuation holds significance for long-term planning and potential sales, determining growth tactics, securing financing, attracting investors, and more.

Given the prevailing inflationary conditions and the challenges small business owners face in the post-pandemic recovery phase, there is a growing demand for business valuations.

This trend is particularly notable among entrepreneurs contemplating retirement, who grapple with the decision of selling now or waiting for inflation to subside and sales to rebound.

Conclusion

Rather than expecting inflation to dissipate, adopting a creative and innovative approach is advisable. While recent Consumer Price Index (CPI) data suggests that inflation may have peaked, it is expected to persist at elevated levels due to ongoing supply chain disruptions and geopolitical tensions, such as the conflict in Ukraine, affecting energy and food prices.

By reviewing your financials and conducting a thorough business valuation, you can formulate a strategic plan for the future and potentially unearth promising business prospects.

Attorney Loretta Kilday is a spokesperson for Debt Consolidation Care (DebtCC) online debt relief forum.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.