by Marc Scudillo, Managing Officer of EisnerAmper Wealth Management and Corporate Benefits
The U.S. economy has been hit by one thing after another the past couple of years – COVID-19 and the resulting supply chain issues, a labor shortage, Russia’s invasion of Ukraine, and high inflation.
Small business owners are feeling the brunt of it, and many aren’t confident that economic conditions will improve any time soon. The Small Business Optimism Index was down 2.4 points in March, with inflation considered the owners’ biggest problem. But while many factors are out of their control, there are measures owners can take to combat negative economic factors affecting their business, including inflation.
The responsibility and commitment to operating and growing a successful and fiscally sound business can be daunting – especially in these challenging times. Inflation can have an impact on everything from materials, production, wages, and profitability to customer satisfaction.
For many business owners today, inflation is a new experience. They need to be creative in their approach. Combating the effects of inflation can be difficult, but the good news is you have options you can take to protect your business and improve your bottom line.
Here are some tips to help business owners manage inflation:
1. Cut some regular expenses.
With inflation surging, business owners aren’t being responsible unless they do a comprehensive review of every expense. Consider the value each expense brings to your business. Don’t cut costs essential to employee well-being or customer satisfaction. Eliminate things with minimal ROI, cancel subscriptions you barely use, and downsize your office space if necessary.
2. Revisit your finances.
This might be a good time to refinance debt on a business loan. Refinancing a variable interest rate to a fixed rate can limit the danger posed by adjustable rates rising in the future. While credit cards should be used judiciously, cash-back credit cards and airline cards can be worthwhile for a business owner. If you’re going to use a credit card, use one that gives value back.
3. Review your business operations.
High inflation has motivated many business owners to re-evaluate their business operations and think of ways to be more efficient, productive and cost-effective. Investing in business technology might make sense. Review workflows and look to simplify processes. Research software that can streamline customer relationship management, inventory and project management.
4. Consider supply chain alternatives.
Given the unpredictability and continued issues of supply chains, owners need to be proactive. Research alternative suppliers, preferably in different locations. You need the assurance of maintaining your stock even if a certain supplier can’t fulfil your needs. Buy as much as you can in one shipment so you won’t have to order as frequently and keep getting hit with price increases. And be transparent with your customers. Stay informed about possible disruptions and keep your customers informed.
5. Raise prices judiciously.
According to a survey by the National Federation of Independent Business, most business owners raised prices over the past year. While that approach isn’t ideal in terms of retaining and adding customers, you can avoid turning customers off by raising prices slowly and strategically.
Offer extra services, rewards, discounts, and strengthen customer service. Focus on the differentiators in your marketing messages. Communicate with your customers honestly to strengthen the relationship. In your postings, tell them inflation is affecting all businesses and you’ve tried to keep the same prices as long as you could, but you’re adding value wherever possible and appreciate their business.
Inflation can be tough on small businesses, but the right strategies and resources can help owners get through it and emerge even better and stronger.
Marc Scudillo is the Managing Officer of EisnerAmper Wealth Management and Corporate Benefits LLC, which provides financial planning, investment and wealth preservation protection services to both individuals and corporations. Scudillo is a Certified Public Accountant and a Certified Financial Planner™ and Certified Business Exit Consultant®.