The big picture on inflation is positive. Since spiking at a 9.1% annual rate in June 2022, the CPI was up just 3.5% from March 2023 to March 2024. [2] However, this doesn’t paint the full picture, as small business owners are still feeling the pain. Even though the CPI has fallen from its peak, it actually rose from January to March, 2024, meaning costs are continuing to rise on top of these already excessive levels. [1] Small business owners know this firsthand, feeling the pinch of rising wages, supplies and the general cost of operating. Meanwhile, the Fed is perfectly content to delay its promised interest rate cuts until it’s been definitively proven that inflation is finally under control.
Taking all of these factors into account, what can you do to defend your business from the one-two punch of stubbornly high inflation and interest rates? Here are some of the steps you can take to mitigate the damage.
Get Spending Visibility
You can’t manage your expenses without understanding exactly where your money goes. To manage a business successfully, particularly during a period of higher inflation, it’s essential to create a process where you can visualize your costs by each spending category. For larger companies, this includes creating a breakdown by each separate business unit, division, process and/or function. This will not only help you contain costs but also make your company more efficient. It’s also invaluable in terms of tax reporting and accountability.
Embrace Efficiency and Productivity
You’ve no doubt heard the expression, “work smart, not hard.” While every successful small business owner also works hard, if you can streamline your operations to make them more productive, you can counteract the effects of inflation. Consider additional training for your workers or implementing apps, AI or any additional type of technology that will make your company’s efforts translate to more dollars for less work. For example, if you run a trucking company, emphasize fuel-efficient driving behavior or use software that makes your routes more productive. Restaurants can use apps to track energy usage and market more efficiently to generate repeat business. The same applies to almost any service industry.
Raise Prices — Carefully and Gently
If you’re like most small business owners, you’re likely reluctant to charge your customers higher prices. But in some cases, it’s not only necessary, it can actually be easier for them to swallow. Over the past two years, consumers have gone through their own pains adjusting to higher prices – but for the large part, wages have not only kept up but actually surpassed the rate of inflation. [5] Although no one looks forward to paying higher prices, this is a time when consumers are both prepared for higher costs and potentially in an even better position to deal with them.
Remember, when inflation is high, the best thing you can do is be exceptionally good at something, in the words of Warren Buffett. [3] Take this time to be the best company you can be and you may even benefit as lesser competitors succumb to inflationary pressures.
Verify that you are Working With the Right Finance Companies
Not all finance companies are created equal. At a time when you need to be minding every penny that goes out of your business, take a look at rates and fees that your banking partners are charging. It may be the time to make some changes as finding the right financing can mean the difference between generating profits or enduring losses. A reputable lender that understands your business inside and out could be just the partner to help get you through this period of higher costs.