3 Ways Your Business Can Beat Inflation
In the simplest term, inflation means less buying power for your dollar. As the price of goods and services go up, we as business owners have to adapt. Those adaptations may vary based on the severity of the inflation and the type of business or service we offer. The following are three different strategies your business may use to combat inflation.
The ones who hurt the most during periods of high inflation are the ones who can’t pass the cost of inflation on to someone else. If your business sells a product or service that consumers feel they can’t live without, you have the option of being able to raise your prices. If your cost of doing business goes up five percent, you can pass that five percent charge on to the customer. Food, water and shelter are the examples of must-have products. Toilet paper, gas and communication services are other less extreme examples of things that people will likely keep paying for regardless of cost.
If your business doesn’t provide a must-have product or service, then your next option may be to cut back on expenses. You don’t have to go extreme in the cuts, but you should seek to equal the cost of inflation. Easy cuts may be bagels, coffee and snacks for the office, excess travel expenses and/or unnecessary office supplies. More extreme cuts, might be benefits or personnel. We never want that to happen, yet it may be required. These cuts may not need to be permanent, but just until you get to the point of where inflation is reduced or eliminated.
Another option may be taking on debt. Particularly, if your business doesn’t sell a must-have product or service, you may have to temporarily reduce the cost of your product or service. If you can’t afford the reduction in price, debt may be your only option. Debt can be a solution to inflation as long as the debt isn’t excessive, too expensive or contains radical repayment terms, such as weekly payments.
If debt servicing is too expensive, it may put your business in a far worse situation as debt may tend to linger longer than inflation. My recommendation is to establish a line of credit. You only pay for it if you use it and you don’t have to use it all at once. Cost is based on use as opposed to a loan where you will pay interest on the entire amount regardless of use. Access to capital is key. It should only be used as needed to cover the slack caused by price reductions.
We covered raising prices, cutting back on expenses and taking on debt. We touched on the points rather quickly; however, they can be crucial to the survival of your business. This isn’t to say that these are the only possible solutions. However, the hope is that it gets your wheels turning towards finding a viable solution for your business.