Inflation-proofing Your Small Business

Rising costs have been making headlines recently, especially in the last few months. The annual whole selling price (WPI) inflation rate surged to 15.08 percent in April’22, raising concerns for businesses given the current global market situation.

Small business owners are forced to make difficult decisions regarding raising pricing and securing supply as a result of inflation. This decision-making process might be troublesome for long-term planning since one may be more concerned with managing inflation risks than one’s ambitious business plans and objectives.

Small business owners face three major issues as a result of inflation. To begin with, it encourages consumers to be more cautious and spend less, resulting in lower revenues for small businesses. Second, one’s purchasing power diminishes, implying that its true value is lower than it was before inflation. Finally, supplies and labour cost more than they did only a few months ago. Small firms' profit margins are lowered as a result of all of these reasons. How can one protect their small business from escalating pricing when raw material costs rise?

Here are three ways one can protect their small business from Inflation

Small business owners are increasingly concerned about rising price. Some categories, such as food, groceries, and handcrafted items, are more susceptible to inflation than others. Here are some general guidelines to help one’s company get through this.

1. Small but regular price increases:

One should update their rates even if they haven't noticed profit issues yet. In reality, whether there is inflation or not, adjusting and increasing prices should be a part of one’s business strategy on a regular basis.

Increase the price hikes in small increments and on a regular basis to become more aggressive. This is preferable to waiting and trying to catch up with growing raw material prices in one large rise at some point.

Rather to boosting prices across the board, try to focus price increases based on specific raw material price changes. Customers' relationships will be less harmed as a result of this.

2. Examine your cash flow:

As inflation rises, ones cash savings may lose a lot of their purchasing power. This indicates that having a significant amount of liquid cash on hand could be harmful. So, if you want to keep up with the market, consider investing that money.

The aim is to increase earnings rather than just sales. To do so, one needs to keep track of their finances and accurately calculate gains and losses.

3. Smart inventory management:

Stocking up on goods and/or raw materials before the suppliers' costs rise is one strategy to battle inflation. At the same time, avoid putting cash reserves at risk when purchasing.

Inventory management not only assists in keeping track of the products, but it also assists in –

· Warehouse management

· Maintains vendor and customer information

· Connects the various sales channels

· Creates and maintains purchase orders and invoices

· Reduces costs while preserving cash flow

Concerns about supply chain disruptions are adding fuel to the inflation fire. One of the most important strategies to shield your business from the worst effects of inflation is to secure the inventory it need to operate.

This will need some extra work on one’s part to engage with the suppliers in order to determine which products are in highest demand. This might assist anyone in anticipating future supply issues and preparing appropriately. To keep your inventory and prices stable, try to negotiate a long-term contract with the suppliers.

Expanding your network is a smart idea so you have sourcing options when supply chain challenges unavoidably affect your inventory.

Streamlining the process

The method to minimize costs without sacrificing quality is by searching for ways to be more productive and streamline the processes. This could entail investing in new technologies or figuring out how to save money without sacrificing product quality.

Small enterprises can benefit greatly from technological advancements. By automating tasks and processes, one can free up time to focus on other areas of their business. This can result in better efficiency and productivity, which can help to enhance the profits.

Many modern business owners may be unfamiliar with inflation, as we haven't had high rates in at least 17 years. Keep a close eye on the profit margins. Prepare to increase profitability rather than merely sales.

Starting an online store is a great method to manage one’s eCommerce business finances and keep ahead of the competitors. While inflation is unavoidable and presents particular issues for small business owners, it does not have to be the be-all and end-all for anyone. There are ways to minimise the severe effects of inflation while planning for long-term growth.