Just as the world was beginning to open up after the COVID-19 pandemic, and people were working out strategies to survive the financial losses they've recently suffered, businesses experienced a new setback.
Due to the still precarious global political scene and energy crisis, inflation began to soar, and it doesn't show any signs of slowing down.
Small businesses are particularly under stress financially when surviving through inflation. They operate and depend on much tighter profit margins than big brands and can rarely afford customer loss or increased supply costs.
That’s why we wanted to come up with some tips for SMEs to manage and thrive through rising inflation. Let’s check out what they are!
How SMEs Could be Impacted by Inflation
How is inflation affecting business? Well, one of the most critical issues SMEs face during inflation is the high supply costs. During the recent inflation, overhead expenses like utilities, wages, and materials have probably soared.
Periods of rising prices mean that SME owners must prioritise higher profit margin goods and leave behind low-profit products to keep their company profitable.
The high-profit goods help maintain high revenue but lead to decreased demand. During inflation, customers would often choose cheaper alternatives for the good that become too expensive.
SMEs will also face higher inventory management charges and interest rates for loans. The inventory management costs will particularly affect businesses that sell short-shelf-life goods. Similarly, businesses that can’t repair broken equipment or use more single-use equipment will also be more affected. They will be forced to finance equipment with increasing interest rates.
While the predictions show that inflation might slow in the next 2 to 3 years, small businesses will probably be affected much longer. In addition, SMEs that sell non-essential goods are likely to be impacted by inflation far longer, because people will choose to spend money on essential items.
Tips for SMEs to Tackle Inflation
There are several efficient strategies for SMEs to tackle the inflation-induced crisis. Here are a few ways to beat inflation and keep your business profitable despite its effect on your finances.
1. Monitor Customer Spending Patterns
Keeping track of your customer's spending habits allows you to prepare better and more targeted marketing strategies. Remember, during inflation, people can't afford to keep up the same spending habits they had before.
You can cater to customers’ new spending habit by means of launching dedicated discounts and promotions. Such move can also help you engage new customers and encourage the old ones to keep using your products and services.
2. Increase Productivity and Efficiency
Find the best strategies to increase productivity and efficiency. These will help you reduce expenses, which is crucial during inflation. In other words, you'll need to learn to achieve more with less material. Analysing your current processes is a great way to boost your business's productivity.
See how they performed each week and identify what strategies could be simplified or removed. This will allow your team to focus on the tasks that add the most value to your business.
Automation is a cost-saving technology and is another way to increase productivity in a business. Besides streamlining, automatised processes also reduce the reliance on manual labor, lowering business expenses.
3. Keep Up with Pricing Trends
It’s fundamental to keep up with pricing trends when inflation is as high as it has been in the past two years. An indispensable task for a small business owner is to maintain their profit margins.
However, you can't overlook the importance of setting fair prices and aligning them with market averages. This is the only way to retain customers despite the loss in demand.
Because SMEs are likely to be affected by inflation long in the future, they'll need to continue tracking their competition. Social medial channels are a great way to keep up with the competitors' prices in a particular niche.
Keeping an eye on your competitors will enable you to gauge their success when they change their prices due to inflation. Small businesses are often more successful if they offer prices slightly below the competitors. It helps gain the competitors' customers.
4. Lower Your Supply Chain Risk
SME supply chain is often negatively impacted as prices soar. Small businesses that provide in-person services, such as contractors, are particularly affected. However, other businesses can also be affected by supply chain setbacks and the resulting financial uncertainty.
The best strategy to bring down your supply chain costs is diversification. By finding more vendors, you won't overly count on one, or their prices. You'll have more options if you need to choose when prices go up. You'll have the opportunity to choose cheaper alternatives in product and material.
5. Don't Try to Wait Until Inflation Levels Off
In fear of losing loyal customers, small business owners might be tempted to wait without doing anything until the inflation calms. However, not making large-scale financial adjustments during inflation would be a mistake as you need to give any response quickly.
Not only can't you afford to wait for stabilisation, but according to historical data, prices never go back to what they were before inflation. Even if deflation happens, SMEs will be less impacted by it than larger companies because they operate on smaller profit margins.
6. Analyse Profit Margins
If you aren't sure when to start making the steps toward financial changes during inflation, start by examining your profit margins. By carefully dissecting your costs, you can identify the margins you'll face in an inflation-affected economy.
The next step is to find a solution to increase your margins, but don't neglect the quality of your products and services either.
It would be in vain to try to increase profit margins through other means if the quality of your goods declines. You'll have no one to sell them to, and your profit margins will fall.
How SMEs Manage Inflation Using Flexible Workspace
Taking advantage of the flex terms under flexible office space to keep your cash flow is a great way to manage inflation. Flexible workspaces offer different workplace solutions for staying on top of things regardless of the changes brought on by inflation.
Staying flexible regardless of the changes in the team size can also help you minimise the inflation-inflicted damages to your company. Keeping track of data and analytics through asset management is key to flexibility – regardless of employee numbers. Besides collecting the correct form and amount of data at the right time, keeping track of when to use it is also fundamental for success.
Optimising business agility is another way to stay afloat during inflation. The best way to achieve this is by ensuring that your teams stay connected. Taking advantage of virtual offices, co-working spaces, and other custom workplace solutions can help keep everyone connected.
The recent inflation phenomenon left its mark on how SMEs operate. As an SME owner, in these times, you must be proactive to keep your company afloat and mitigate the impact of inflation.
Prioritising productivity, analysing profit margins, adjusting supply chains, and monitoring customer spending habits are all great ways to manage inflation.
Start using a flexible workspace to get you more cashflow and stay on top of your finances. Whatever you do, don't try to wait it out, as this will only make you lose profit.