5 Measures to Help your Business Fight Inflation
Conseils d’experts des SADC et CAE
INFLATION: a continued rise in the general price level……. according to the Merriam-Webster
This increase will have been 8.1% over 12 months (June 2022). It will be long remembered as the largest annual change in the Consumer Price Index (CPI) in almost 40 years, according to Statistics Canada, particularly for SMEs.
Small and medium-sized businesses face many challenges, such as labour shortages, which lead to wage increases, higher procurement costs, and less flexible suppliers.
In short, input costs are going up and profit margins are going down. These impacts of inflation put the financial health of businesses at risk.
While you can’t control inflation, you can implement strategies that will help you fight inflation and protect your small business.
1. Analyze your Data
In order to implement winning strategies, you must first have a clear picture of your financial situation. The more accurately you know your market and your situation, the better able you will be to make the right decisions.
Knowing the cost of each product or service is essential at this stage.
Even if you have already done the exercise, several variables change simultaneously in the current market, including input costs and salaries. It is important to have a clear view of the current situation.
Doing so will allow you to determine whether some of your products or services are less profitable or even losing money. With this information in hand, you can implement the following action.
2. Reviewing Your Pricing and Products
Are some of your products or services very profitable, while others are eating into your profits? Consider keeping the more lucrative ones.
This is a difficult decision, given that you have always offered a wide variety of services and products to your customers?
Be transparent; customers will appreciate it if you tell them why a product is temporarily unavailable.
You offer free delivery for purchases over a certain amount and your shipping costs have skyrocketed?
Consider increasing the purchase amount for free delivery or offering a discount when customers pick up their order in shop.
3. Improve Supply Managements
Your suppliers have a direct impact on the cost of your inputs and therefore on your profit margin. They too are affected by inflation: price increases, transport costs, shortages of certain products, etc.
In order to secure supplies, guarantee the price of purchases and demonstrate your commitment to your suppliers, why not sign longer-term supply contracts with them?
Your suppliers will be grateful for the trust you place in them and, as a result, will be more inclined to negotiate. It all starts with a solid relationship!
4. Optimise Your Operations
A few adjustments can sometimes make a big difference!
Efficient working methods can save you time and money.
For example, did you know that by investing in digital transformation, productivity increases 15% to 25%?
You generate more products or services without having to work longer hours or hire more employees.
The cost may seem high at first, but investing in new technology will save you money in the long run.
To save money in the short term, consider working on the quality of your service. This will help limit replacements and returns. This is a simple but effective way to protect your profit margin.
“Nothing is permanent except change” stated Heraclitus.
Wear your creative entrepreneurial hat to innovate and think of ways of optimizing or changing your manufacturing methods to reduce your input costs.
Involve your employees; two or more heads are better than one.
Beyond the five actions suggested to protect your small business from the effects of inflation, there are many other strategies that can be initiated.
The consultants at your local SADC are there to support you. They will be able to guide you and help you find solutions adapted to your small business.
Ready, set, go!
Your local SADC and CAE advisors are here to help you go further.