Inflation refers to the overall rise in prices of goods and services over time. While a certain degree of inflation is considered economically useful, persistently high and pervasive price increases erode purchasing power and can wreak havoc on consumers and entrepreneurs alike.
Startups and other small businesses with limited resources often bear the brunt of high inflation rates. High inflation causes the prices of raw materials, labor, and other resources to rise, leading to higher costs. Running a business becomes super expensive. Fortunately, there are some steps you can take to protect your business against high inflation. Here’s what to do.
Review Your Pricing
The first thing you need to do during periods of high inflation is review your pricing. Of course, price hikes are unpopular with customers, but you can do it strategically. For instance, you can add a new product feature and then increase the price.
Increasing product prices is necessary to combat inflation. But increase prices gradually to give your customers time to adjust their budgets to afford your products.
Raise Additional Capital
You may also need to raise additional capital to offset the effects of high inflation. Interest rates tend to flare up during periods of high inflation, increasing the cost of funding. Therefore, consider different funding options to keep borrowing costs low.
For instance, you can apply for a car title loan online and use your car as collateral. You’ll get a quick, low-interest loan and make your business thrive during tough economic times.
Watch Your Spending
Raising prices of the best Mercedes sports cars isn’t always a viable option during periods of high inflation because everyone, including your customers, is feeling the crunch. You might be able to serve your customers better if you reduce your expenses.
You can reduce business operating costs by automating some processes. Also, consider outsourcing important business functions such as accounting or marketing to combat rising labor costs.
Reduce Your Supply Chain Risk
Another effective way to protect your business from inflation is to optimize your supply chain. Eliminate things that make your business vulnerable to supply chain disruptions. For example, relying on a single supplier during inflation is a big no-no. What happens if their business goes under?
Try finding domestic alternatives to overseas suppliers, creating backup supply chains, and stocking up supplies with low storage costs to reduce your supply chain risk.
Be Flexible
High inflation makes it difficult for small businesses to remain profitable. When inflation rates skyrocketed in 2022, about two-thirds of small businesses were at risk of going under. To avoid a similar fate, make your business flexible so it can quickly adapt to market changes.
Be Prepared!
According to the latest Consumer Price Index by the BLS, US annual inflation was 3 percent in July. This means you don’t have to worry about inflation at the moment. But it doesn’t hurt to prepare for the future.
During periods of high inflation, prices rise across the board, making it very difficult to do business. Many small businesses struggle to stay afloat, and many fold. Use the strategies we’ve outlined in this article to give your business a better chance of survival during tough economic times.