Inflation Is the Biggest Business Problem: Here’s How 5 Small Business Owners Are Coping

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Inflation is the most important business issue, according to 22% of business owners surveyed for the NFIB Small Business Optimism Index. This issue remains unchanged from December 2021 and the index notes that small business owners began raising prices in early 2022 to combat inflation concerns.

GOBankingRates spoke with several small business owners across the United States to learn more about the strategies they use to fight inflation.

Read more: 17% of small businesses fear closing in 2022 – How they can fight inflation and retain employees
Related: Small Business Index Hits Pandemic High as Staffing and Investment Outlook Rises, But Supply Chain Issues and Inflation Remain Top Concerns

Use automated processes

Bill Glaser, CEO of Outstanding Foods, said automation is the friend of small business owners and the enemy of inflation. As labor costs continue to rise, productivity is becoming more and more expensive. The good news is that small businesses can automate while still being personal with consumers.

“Our team uses automated processes such as chat boxes and project management software to streamline our workflows, provide immediate customer support, and increase productivity while reducing costs and avoiding burnout,” said said Glaser.

Watch your spending

Now is the time to be very careful with your spending. What expenses can be reduced that do not provide a significant return on investment (ROI) for the business?

Hector Gutierrez, CEO of JOI, said that by tracking expenses, his company was able to adjust budgets to maximize profitability and stay on top of tax deductions.

“When you track your expenses wisely, you find out where you can cut costs. You could reduce your inventory or turn to cheaper marketing strategies,” Gutierrez said. “Spending tracking is always necessary, but inflation is the professor looming behind our heads, checking our answers.”

See: The best investments you should make as a small business owner

Implement price changes

A popular strategy that helps small business owners fight inflation is to raise prices.

Ely Khakshouri is the founder and CEO of Retrospec, a DTC company that sells off-the-shelf essentials including bikes, skateboards, and paddleboards. Like many sporting goods brands, Khakshouri said it raised prices but spent a lot of time thinking about how best to implement price changes in a way that was transparent and cared for customers and partners.

Small businesses that decide to raise prices should be transparent, Khakshouri said. Communicate well with customers, who are likely to understand inflation and supply chain issues.

Apart from customers, be sure to let dealers know about a future price increase early.

“This gives resellers time to stock up on old prices, digest new prices and implement changes to their store,” Khakshouri said. “We typically notify our resellers of a price increase two to four weeks in advance to ensure sufficient planning time on their end.”

Establish long-term contracts with suppliers

Brogan Renshaw, founder and director of Modelers Central, said he was able to circumvent inflation by establishing longer-term contracts with suppliers.

“When prices were expected to increase, I immediately made arrangements with my long-time suppliers to lock in prices, which they agreed to as it also meant guaranteed revenue for them,” Renshaw said.

Renshaw said locking in prices for long-term contracts protects budgets and business operations from the impact of inflation.

“You can protect your prices and your supply, which in turn protects your customers,” Renshaw said.

Similarly, small businesses can renegotiate existing contracts with suppliers. Some strategies that can be discussed with vendors include pre-ordering, buying in bulk, and financing payments over a long period. Renegotiating contacts with existing suppliers helps small businesses better manage their cash flow and reduce the pressure that inflation puts on the business.

Find: Small business owners predict what’s next for 2022

Watch how other companies are tackling inflation

Small businesses aren’t the only ones struggling with inflation. This is a problem that all businesses face. Khakshouri said small businesses need to put on their consumer hats and pay close attention to how other businesses and brands are fighting inflation and communicating about it with consumers.

“Use what you see to inform your strategy,” Khakshouri said. “Keep an eye on your competition and what they are doing to ensure you stay competitive.”

Run “What if?” Scenarios

Harry Campbell, CEO and Founder of The Rideshare Guy, said their team regularly performs “what if?” inflation scenarios.

In an extreme scenario, Campbell said he would check his finances and make sure there is enough cash and risk management resources in case things go wrong. Another way they would try to adjust and strengthen the company’s pricing power would be to improve their offerings, add complementary services, and target less price-sensitive customers. If necessary, freelancers could be relied upon to cover technical website tasks and other support functions.

“I think the combination of these factors will help our business stay operational even in the worst-case scenarios, but we’re always prepared for the worst-case scenario,” Campbell said.

Whether your small business is battling inflation or taking advantage of a quarter where sales are steadily increasing, it’s a good idea to strategize on what the business would do in the event of unforeseen circumstances.

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About the Author

Heather Taylor is Senior Financial Writer for GOBankingRates. She is also the editor and brand mascot enthusiast for PopIcon, Advertising Week’s blog dedicated to brand mascots. She has been featured on HelloGiggles, Business Insider, The Story Exchange, Brit + Co, Thrive Global and other outlets.

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