You may have heard the term “inflation” used frequently in the news but it’s rarely defined in explicit terms. Put simply, inflation is a decrease in the purchasing power of money. When inflation is high, goods and services cost more since the currency is worth less.
Both consumers and businesses suffer during inflation: Businesses need to pay more for raw materials and inventory, which forces them to increase their own prices, which in turn forces the consumers to pay more.
Worry and uncertainty seem to be the overriding feelings for small business owners, with many feeling that the current crisis could have long-term consequences for their business. In this article we will be discussing tips that will help your business survive in this period of inflation.
WHAT IS INFLATION?
Inflation is the continuous and accelerating rise in the prices of goods and services. It occurs when the demand for goods and services outstrips supply and ultimately drives up the prices. As a result of inflation, there is also a reduction in the purchasing power of money. This will often push business owners to increase the prices of their goods and/or services. There are various cause of inflation and some include: increase in taxes, reduction in the rate of producing goods and services, increase in money supply, new government policies and so on.
The question remains, how can you as an entrepreneur stay afloat in this period. Here are some tips to help you beat inflation and stay profitable in your business:
Reduce Expenses: One of the ways to combat inflation is to minimize your expenses or save costs. You will need to review certain costs or expenses to see if there is anything you can do without. This may include cutting down on the quantity of raw materials for production or some office supplies. Make sure you are cutting expenses wherever you can. However, this should be without prejudice to the quality of goods or services.
Amend Your Prices: If expenses are consistently rising, you might want to reevaluate your prices. Never let your prices get static. Make sure your selling price still reflects your costs by keeping up with the prices of the raw materials you buy. However, you must raise your prices in the right ways in order to avoid the risk of your customers purchasing from your competitors. Consider analyzing specific supply issues and raising pricing in response rather than raising prices generally. There is a good likelihood that your clients will comprehend the necessity to change rates because inflation is a challenging moment for all business owners and customers.
Stock up on your Supplies: You have to consider buying your raw materials in large quantities and reserving them. For instance, if you are into food business, you may stock up on bags of rice now before the prices go up again. This is advisable because there is every likelihood that the prices will keep increasing.
Manage Cash Flow: Cash flow is very important for any business. A major cause of failure in business is shortage of cash. When there is steady cash flow, you will be able to pay your suppliers and venture into new prospects. You must also look for ways to motivate customers to make payments in order to keep the cash flowing. This could be by providing discounts on products and services. Additionally, you might start asking for an advance payment for larger goods or services.
Leverage Technology: Utilize technology to automate as many repetitive operations and procedures. This involves getting software that will assist you in managing certain tasks like accounting, marketing, customer service, and scheduling. With technology you will be able to save money on the long run and also increase productivity.
Get Financing: In times of inflation, many business owners are hesitant to take out loans, but not having access to money is even worse. Access to finance could assist your small business in managing rising costs, preventing cash flow issues, and maintaining operations. Having more available cash and a clear plan for using it to reduce debt is a great way to make sure that your business is ready for whatever the future holds.
Work on Employee Retention: You have to ensure that your current employees are motivated enough to stay with you during this period. The period of inflation is not the time you may want to hire more employees. Employee retention will ultimately reduce the costs of advertising for the vacant position, training the new employee and so on.
You must know that the inflationary period is one of the many challenges your business will face. As a result, preparation for that period is more important than ever. You must comprehend the causes of and effects of inflation on your business operations in order to control it. You must develop strategies and an actionable plan in order to stay afloat during inflation.
Kudi Konsult is Nigerias No 1 Platform for all your Business Support Needs. On one platform you can get Business Registration (CAC), Trademark Registration, Business Plan Writing, NAFDAC Registration, DPR Registration, Money Lenders License, Corporate Profile & Logo etc