You can protect your business from inflation by keeping an eye on expenses, managing your cash flow and leaning on expert advisors.
Running a small business takes determination, especially when operational costs start climbing. Think about the last time you had to absorb a sudden price hike from a supplier to keep your prices fair for your customers, or had to scramble to finish a job on time when parts were stuck in transit. These moments are tough, but they also show just how resourceful and resilient you have to be as an owner.
While navigating inflation isn't easy, it forces you to look more closely at your operational efficiency and find smarter ways to manage your money. The good news is that once you understand what is driving rising costs, you can make proactive choices to protect your bottom line, improve your cash flow and keep your business growing.
Inflation is driven by two distinct economic forces: demand-pull and cost-push. Here is a breakdown of each:
Demand-pull inflation happens when consumers have more cash to spend, causing the demand for goods and services to surge.
This typically happens during economic recoveries or after periods of forced saving. When government stimulus, tax cuts or rising wages leave consumers with an influx of cash and a desire to spend, demand quickly outpaces what businesses can supply, increasing prices.
Cost-pull inflation occurs when the supply of finished products and raw materials decreases, causing a shortage. When shortages cause prices to rise, it challenges business owners to become more resourceful.
For instance, when shipping ports face delays or staffing shortages, materials take longer to arrive. But this also creates a perfect opportunity to look closer to home, discover local vendors and build a more resilient supply chain.
Managing rising costs is always a balancing act, but it's also a chance to prove your business’s strength and flexibility. Here are a few ways you can turn these challenges into advantages:
You don't need to make drastic changes overnight to handle these shifts. By staying proactive, you can use a few smart, practical strategies to protect your business and set yourself up for long-term success.
While you can’t control the economy, you can take steps to protect your bottom line, defend your margins and avoid drastic measures like layoffs or shutdowns.
Automating certain tasks can help you and your staff save time and money, eliminate redundancies and maximize productivity. You can automate financial management tasks, like payroll, bookkeeping and invoicing, as well as many marketing and sales processes. If you operate a warehouse, you can use automation software to streamline inventory management and shipping logistics.
Try to eliminate, or at least reduce, nonessential spending. Delay facility improvements and purchases of supplies and new equipment until economic conditions improve, unless they are critical to your operation. You can also consider pausing outsourced services like cleaning or maintenance and try to take on those tasks yourself to help reduce spending.
Purchasing raw materials and inventory in bulk can help you get lower cost-per-unit pricing and shield your business from sudden shortages.
If you have a clear picture of your long-term inventory needs but don’t have the cash to buy in bulk, a short-term small business loan or line of credit may be an option to help bridge the gap.
There are many treasury management services that support the financial health of your business. When it comes to addressing the impacts of inflation, here are a few tools that provide support.
Inflation is a normal part of the economic cycle, and adjusting your operations is a reality of doing business. But, you don’t have to navigate these shifts alone. Your accountant and commercial banker can partner with you to:
Contact a commercial banker today to build a proactive financial strategy to help manage the effects of inflation on your small business.
