For the past two years, small businesses have faced an incredible number of challenges from lockdowns and labor shortages, to supply chain issues and now, high inflation. Car prices, groceries, gas, energy and pretty much everything in between is soaring in price as we accelerate through 2022. While that isn’t great news for consumers, inflation can be even worse and pose a severe threat for small businesses. So how can you combat these surging prices that are dipping into your margins, and putting your business at stake?
According to the Bureau of Labor Statistics, the all-items index rose 7.0 percent for the 12 months ending December 2021— making U.S. inflation the highest in 40 years. It’s important to understand what this means for small businesses and how to mitigate through such unpredictable times to come out on top.
Reduce work through automation
With the great resignation causing a rise in cost of labor as well as shortage of labor it may be a good idea to pause on hiring new talent. Consider investing in technology or software that can streamline some of the more time-consuming tasks. Reducing some of the data-oriented tasks through automation leads to less labor needed for operations and less stress on current employee tasks. Employees will be able to focus on more productive responsibilities and duties leading to a more beneficial business.
Improve productivity and recognize performance
The better the work ethic, the better the profits will be. By creating an engaging culture among employees and recognizing performance, you can boost productivity and retain talent. Employees that feel appreciated and valued for their work are more motivated to perform at their best. Colleagues soon realize that performance pays and renew their efforts to get noticed.
Be deliberate about raising prices
While it might seem obvious to raise prices of services due to high costs of operational expenses, this isn’t always the case. Increasing pricing could deter future customers and risk losing current clientele who don’t see the value in paying more for the product/service. Keep an eye on competitors and see if, and how much their prices went up, and how consumers seem to be reacting to it. If overhead, labor, and materials costs are steep and it’s been years since a price increase, a slight rise may be key to survival. However, if business is slow, a price increase might not be the smartest business move.
Cut costs when possible
If the pandemic taught us anything, it showed us that remote work does work. If you really need to cut costs, consider downsizing your workspace or switching to a fully remote work schedule until prices start to balance out. Even a hybrid schedule of half in office and half remote may be beneficial for your team.
Don’t just save, invest too
While it is important to save, investing your money so you can multiply funds outside of your business is extremely important, especially during times of inflation. Even if business is on the slow side, always distribute a portion of your income toward investments. The losses you suffer from higher prices will be more than made up for by the growth of your invested dollars down the line.
The reality is inflation is going to continue to rise and business owners must be prepared to succeed. It’s imperative to develop a strategy and safety net to protect your business. At the end of the day, inflation is something we all feel the effects of, and being honest with your customers and employees will come a long way.
Joe Camberato is the CEO of National Business Capital.