Want to keep inflation from derailing your budget? Try these 8 tips today.
With the rising inflation rate breaking all records, rising interest rates, supply chain disruption, the ongoing pandemic, and armed conflict in Europe, small businesses are caught between a rock and a hard place.
Employees are leaving in search of better pay, vendors are raising their prices, and consumers have less to spend — added with the loss of an organization’s purchasing power, cash flow is tighter than ever.
To survive and thrive, businesses must take the reigns, evaluate their cash flow and operations, and find a way to improve their profit margins.
8 tips to keep inflation from detailing your budget
it’s critical to take a solid and truthful inventory of your current accounting process and operations.
There are a number of actions a small business owner can take to reduce the effect of inflation on their organization. While all of these tips tend to help reduce costs and improve cash flow, it’s critical to take a solid and truthful inventory of your current accounting process and operations. Doing so will help you to decide which actions make more sense for your business.
1. Buy ahead of time
One way to reduce long-term costs is to buy ahead of time.
Without knowing when the supply chain will return to normal, the longer you wait to purchase goods, the potentially higher inflation will impact the price. For inventory you know will sell, it can be better to buy in bulk ahead of time. This does two things: First, your small business bypasses potential future inflation since you bought at today’s price. Second, you are likely to capture higher discounts for buying in larger qualities.
The key to buying ahead is to purchase items that you know you can move. Keeping a supply of “experimental” products isn’t recommended for this strategy.
2. Give your employees a (real) raise
Staff turnover is expensive, far more so than giving a raise. With employees actively seeking bigger paychecks to handle the rising cost of living, providing a salary increase that meets inflation can inspire trust and lower turnover rates.
Keep in mind that this money can come from a variety of sources. For a small business in a tight spot, temporarily reducing perks or benefits and turning those dollars into cash can be an effective way to balance the budget and employee needs.
3. Lock-in contracts now
Contractors and subscription software will all likely raise their prices as the inflationary pressure continues. Similar to buying inventory in bulk, locking-in current contracts prevent the likelihood of a being priced out of an essential tool. Ideally, you will want to focus on tools and contractors that are business-critical or allow you extra resources to build another revenue stream.
4. Apply and tap into credit lines
In an attempt to temper inflation, the Federal Reserve is raising the interest rates banks use to trade with each other. This often translates into higher interest rates for banking or payment services, including forms of credit. Lines of credit, your commercial credit card, and loans will all start to feature higher interest rates. At the same time, these organizations will likely further restrict access to credit.
Having credit sources you can turn to in a pinch can ensure that you have the cash flow you need to get through difficult times. This is the time to identify lenders, build your credit, and create relationships that will provide a safety net if your business needs it.
5. Invest in automation
More small businesses than ever can take part in automation. From automating invoice processing and accounts payable, to scheduling your marketing posts and ads, there are a number of ways that a small business owner can reduce time and money costs without having to cut into their profit margin.
Automation serves a few functions when fighting against inflation and the rising cost of business. Streamlining repetitive processes reduces costly errors. But it also saves hours of time for either the business owner or your employees. This recovered time can be used for profit-generating activities.
Activities small businesses can automate are:
- Lead generation
- Sales follow-ups
- Purchase follow-ups
- Payment collection
- Customer support
- Customer feedback
- Marketing ad campaigns
- Invoicing and receipts
- Expense reporting
There are also numerous activities that can’t be automated, but can be streamlined through automation. This includes PTO scheduling, identifying qualified hires, and certain onboarding tasks.
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6. Gain cash flow visibility
It’s difficult to know how much you can save and spend if you can’t see everything. If you are still using an excel spreadsheet to track your business cash flow, stop.
There are a number of software options available to meet your accounting needs, from simple cash flow visualization to complete bookkeeping. Accurately tracking your cash flow will allow you to make better-informed decisions to avoid rising inflation costs.
7. Reduce spending
Once you have a comprehensive view of your accounts, it’s time to cut spending, at least temporarily. Reducing your expenses is a sure-fire way to stay in the black and preserve capital for mission-critical opportunities.
8. Increase prices
It’s not ideal, but sometimes the only way forward is to transfer the increased cost of doing business to your customer. When setting new prices, it’s critical to scope the market and give customers plenty of notice about the price change. You’ll also need to convey the added value they will be receiving or the reason for the price increase.
9. Focus on strategy
Finally, with the higher inflation rate, strategy becomes essential for survival in the long term. From which vendors you buy from and which equipment you may need in 2 years, to pricing models and payroll, you’ll want to sit down and create a focused battle plan for potentially rocky economic times.
Work together with other stakeholders, whether that be your accounting team, employees, financial advisors, or other small business owners. You don’t have to create a winning plan alone.
From which vendors you buy from and which equipment you may need in 2 years, to pricing models and payroll, you’ll want to sit down and create a focused battle plan for potentially rocky economic times.
Bonus: Do more with online resources
With experts uncertain about when inflation will officially begin to temper down, business owners and HR leaders are always looking for cost-effective solutions. One place to start is how to calculate your biggest expense: Payroll.
Payroll is not only a significant expense but 40% of small businesses get fined due to incorrect filings. However, being able to calculate and report on payroll accurately can save you some serious change.
Find out how to keep business costs low during times of inflation with 12 months of free Zenefits payroll.