Whilst the annual rate of inflation dropped in January 2023 following its 41-year high of 11.1% in October 2022, it remains high at 10.1% .
This phenomenon certainly isn’t unique to the UK with countries such as Italy and Germany recording 12.3% and 9.6% annual change in consumer prices in 2022 respectively, however it remains a challenging time for all. Particularly small business owners.
For many businesses, raising prices may seem like the natural and only reaction to inflation. And although this strategy may be necessary in certain circumstances, you run the risk of losing customers, which at this present moment in time is particularly undesirable. We think you’ll all agree that there are better ways to combat the problem.
We're always ready to help small businesses, so we have put together some other ways you can protect your business as prices continue to rise.
Buy in bulk.
The first tip we’d like to share is perhaps the simplest and the one that your business has been doing for as long as you can remember, but it’s certainly worth including here!
Essentially, your best bet to protect your business as prices continue to rise is to plan ahead and buy smartly. And one of the best ways to do this is by buying in bulk. By allowing you to save money per unit of a product, it’s an immediate and easy way to save cash in the long run. Furthermore, by buying in bulk you’re protecting yourself against any further increases in prices that may be coming into effect further down the line. It’s a win-win situation.
Reduce expenses.
The second way in which you can manage your business through inflation is by cutting your expenses as much as possible. Take a good look at what you’re paying for and think about why it is that you’re paying for it.
Is there anything you’re paying for that is no longer needed or which has a more cost-effective alternative? If so, do something about it! For example, it may be that you have a co-working space that you no longer actually use to its full potential. This is something that can easily be cut.
Automate if possible.
Following on from cutting any redundant expenses, it’s a good idea to automate what you can. By leveraging technology to your advantage, you may be able to automate repetitive tasks and thus accomplish more with your time while spending less.
Prioritise cash flow.
As any small business owner will know, cash flow is integral to your business. After all, it is consistent cash that allows your business to run smoothly, pay vendors and invest in new opportunities.
To improve cash flow, it may be a good idea to encourage your clients to pay your business faster. This is of course easier said than done, but could you possibly offer discounts for early payments or ask for deposits up front on larger projects? If so, then maybe this is something worth considering.
Keep your current customers happy.
It goes without saying that if you’re feeling the effects of inflation, your clients certainly are as well. Whilst you may feel like your immediate priority is cash flow and the need for more of it, the greatest priority should be the retention of your customers. They are the ones who bring in money at the end of the day. As such, it’s important to keep them happy.
So, if a client is potentially facing financial troubles and can’t afford your current prices, perhaps it’s worth offering a short-term discount to encourage continued co-operation. Alternatively, it may be a good idea to offer a longer payment date on an invoice if a smaller portion is paid up front. These measures may reduce your incomings, but if it helps you keep a client, then it will certainly be worth it in the long run.
On the other hand, it may be that you have to increase prices. Perhaps you have no other choice. This is never an easy situation as nobody wants to pay more money for an existing service, but there are ways to mitigate any potential hiccups and keep your clients happy:
- Choose the right time: If possible, try to be considerate when you increase your prices. For example, as people are more lenient with their budget at Christmas time, this may be the best time to break the news.
- Alter the packaging of your product/service: By getting creative with how you present your service, you may be able to distract customers from the increase in price.
- Offer a consolation prize: Having something nice to offer always helps to smooth the blow. For example, could you offer free delivery, or a buy-one-get-one free type offer for a short time?
Focus on employee retention.
Clients aren’t the only ones you should be keeping happy during this time. It is vital that you keep your employees happy too. It may not be the case that you can afford to raise your employee’s salary in line with inflation, but there are other ways you can keep your employees smiling.
For example, can you afford to offer a one-off bonus? Or perhaps a small voucher to a coffee shop so that they can have their lunch on the company for a week? Maybe even a small sweet treat would put a smile on their face.
It doesn’t matter too much what it is, but what's important is that you show your employees that you value their work.
Prepare for every eventuality.
Despite your best efforts, there is always the chance that inflation can cause quite serious problems for your business. No matter how much you reduce expenses, encourage flexible payment terms and even raise your prices, it may be that your company simply doesn’t have sufficient cash to continue functioning without some extra assistance.
This is where rebuildingsociety.com can help! We help British SMEs of all shapes and sizes raise the cash they need for their business. We understand business and want to help provide your business with the support needed to get through this inflationary period in one piece. Get in touch today to see how we can help you.
Post written by Charlotte Graver
