Inflation is on the rise and it is a matter of concern for not just one country but the entire globe. You often read in magazines, and newspapers about the impact of inflation on the buying power of consumers. Still, small businesses also suffer from its increased prices of raw materials, storage fares, and shipping cost put a threat to run small businesses as well. However, this is often put under shade by making an excuse that they can pass their cost onto their customers, so the ultimate impact is borne by consumers.
Well, things are not the same in reality as they seem. Although businesses have a right to pass the increased cost onto their consumers, it varies by business and each business has to be strategic to keep it as low as possible because cost variation can easily break the customer base that you have created with immense hard work.
Further, there are some liabilities that are solely borne by entrepreneurs. For instance, increased prices of raw materials can result in increased cost of the product, but if the demand falls you will suffer paying off your liabilities. For instance, if you have taken on a £5000 loan UK, you will have difficulty paying them.
How to come to grips with rising prices as an entrepreneur
Rising prices are undoubtedly a threat to the survival of small businesses but there are certain ways to reckon with it.
- Raise prices but smartly
Inflation will never go away so you will have to raise prices to cover your business overheads. For instance, if the raw material you use has become expensive, you will have to proportionately increase the prices so your revenues do not fall.
However, you will have to see if your competitors have increased the prices because, if not, you will lose your customers to your competitors. If your competitors have not increased prices, it does not mean they have let go of their profits.
No, they must have used another method to cover the cost. This blog further discusses new ways to reduce the impact of inflation without increasing the prices of your products.
- Whittle down overheads
Raising prices may not be a solution all the time because this may reduce your number of customers. If your customer base reduces, you will certainly see a decline in your profits and you will be back on the drawing board. Therefore, you should find ways to whittle down overheads.
If you reduce your business expenses, the savings will add up to your profits. It can be quite hard for you to see any improvement in profits immediately but you will see its significant impact over time. Make sure you prioritise the debt payment because that is what you cannot change and then look for ways where you can cut back. For instance, you should shift your office to a location where you pay lower rent.
Try to see unnecessary expenses, for instance, marketing campaigns, training modules, and the overabundance of products that are not contributing to your business at all. If you can manage to operate your business from home, you should use work from home facility.
Letting your employees work from home will save a lot of money on energy bills, rent, building maintenance, and the like. You can hire employees from afar locations who would be ready to join your company for low wages. If it is not possible to entirely convert your business from work from home, you should call your employees a week or two in the office and then let them work from home.
There are some companies that require their staff to work at the office for a week and then out of the house for the rest days of the month. Note that you do not need to dramatically cut your operation overheads to fight against inflation without raising prices.
- Downsize your company
Downsizing your company is another way to save money. For instance, you can lay off employees that are doing repetitive tasks. The software can do it, so rely on them. Why pay high salaries to employees for a monotonous task that a software application does with just nominal monthly subscriptions? In fact, this will boost the productivity of other employees.
It can be a very tricky decision for you because your employees can have an argument with you. No small business likes to throw their employees out like this, but when your company is struggling to stay afloat despite doing whatever you could do, you will have to take this hard decision. If you need to hire people later, you can look for those who are ready to work for low wages.
- Run your business online
Of course, it is not a feasible way for all types of businesses but there are some that can be run online. If your business has that kind of nature, you should focus on running an online business. Just make a website, like an e-commerce store, and sell products to your customers. As far as it is about inventory, you can store it in one large warehouse.
Try not to store a lot of stuff so things do not get damaged or go off, of course, depending on the type of product. You will be to save a lot of money by running your business online. In fact, you will be able to do most of the things on your own and will need a couple of employees to support other functions of your business. This is a great way to prevent your small business from a strike of inflation.
The takeaway
Inflation is inevitable and this is what you can do nothing about. Various factors are responsible for increased prices. As a small entrepreneur, it can be scary to deal with the rising cost.
You can raise prices to cover the additional cost to prevent your revenues, and if that is not possible for you, you can lower overheads. In fact, first, you should try to cut back on them before raising prices. Try to downsize your company and run your business online if possible.
