Ways SMEs can protect small business from inflation pressure
Pressure is building for many businesses as we enter a more inflationary period on a global level. The Reserve Bank of Australia has decided to increase the interest rate for the first time in more than a decade from 0.1% to 0.35%, even though inflation in the country isn't currently at the levels reported in the US. Energy costs are rising, and supply is still limited while demand increases.
For SMEs that have weathered the pandemic and are trying to get back into growth mode, inflation couldn't come at a worse time. Companies are finding it hard to accept the rising expenses in the middle of the labour crisis throughout all industries. They also require additional funding to grow and develop activities related to digital transformation.
In order to reduce the effects of inflation, what possible steps can you take for your small business?
1. Lower your expenses
Cutting costs as much as possible is one of the most straightforward strategies for small businesses to combat inflation. See if there is anything you can go without, in particular by checking your monthly service contracts.
Do you, for example, continue to pay for a co-working place you no longer use? If so, you can likely reduce that cost. There may indeed be some necessary subscriptions that you cannot afford to cancel.
You have two options when it comes to those contracts: you may negotiate over the price with the seller or look for a less expensive option.
2. Keep a tight eye on productivity
Cost-cutting strategies include focusing on accomplishing more with less and having a clear business plan. Consider what you can do to increase efficiency if you still use a lot of manual procedures for everyday operations like payroll processing, invoicing, or marketing.
For starters, list every business procedure you perform each week. It's easier to spot places where you can optimise a process by laying it out step-by-step. Examine how you and your staff use your time each day. You can protect yourself against inflation by identifying methods to save even 3-5 hours weekly.
3. Automate whenever you can
It's great to automate processes and not only for large corporations. You can automate a bunch of tedious work with the help of software, from simple accounting, scheduling processes, to customer support, marketing, and many more. Highly likely, you already make use of some of them. Are you making the most out of them?
Automate a large portion of your daily tasks as you can. It streamlines processes, reduces mishaps, and boosts customer service. More so, customers appreciate speedy, simple, and trustworthy products.
What procedures should you automate? It's a smart choice if the work has few variables, is repeatable, and doesn't need an effective decision-making process.
4. Place cash flow first
Cash flow is always vital for small businesses, and a lack of funds is the number one reason most fail. Your business will function more smoothly if you have a steady cash flow, allowing you to pay your suppliers and invest in new initiatives.
However, many businesses have trouble with cash flow. Look for strategies to encourage your clients to pay sooner to increase income. Of course, you'll also want to be adaptable because they feel the inflation impact.
If clients pay their invoices early, you could also consider giving them discounts. You may also ask for an advance payment for larger goods or services.
5. Understand your debt situation
Many small businesses are heavily in debt as a result of emerging from the pandemic downturn. Hence, use any leftover money to pay off high-interest debt as soon as possible, particularly when interest rates increase.
Try to reduce the principal amount of your debt while you can, even if you cannot pay it off completely. You may protect yourself against inflation by cutting your payments through a reduction in interest rates.
6. Keep an eye on staff retention
Inflation is having an impact on people other than you. Your employees are affected as well because prices for necessities are increasing. However, if inflation rises, your employees may assume a pay increase too.
There are other ways to reduce your employees' financial burden if you can't afford to raise salaries. The expense of commuting, for instance, may be reduced if workers were permitted to work remotely. Additionally, you may provide stipends for items like daycare, tuition, or house insurance.
It's vital to discuss your employees' wage expectations with them proactively. Find out how they are being affected by inflation and what type of pay scale or perks may help.
7. Open a line of credit if you can
You must continue to invest in your business if you want it to expand and stay inventive. One of the most significant ways to achieve this while maintaining cash flow is by getting a line of credit.
A line of credit can assist your business in funding your working capital requirements, increasing employee compensation, and making future investments.
Key takeaway
Despite how challenging it may be for small business owners, you can fight inflation by taking specific actions. It may be the first time you've had to deal with this challenge, but it's likely not the last, so you can use what you learn now to prepare for future periods of inflation. The bottom line is that you should learn to foresee inflation as a business owner.
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