Inflation is a natural part of any economy. In the state of Texas, small business owners will typically find numbers that vary but hover just above or below 2%-3% annually. These levels are survivable in many cases and allow for your small business to continue moving forward; however, many economic factors can lead to higher periods of inflation than normal.
Since the COVID-19 pandemic, we’ve seen many different economic factors come into play including stimulus checks, supply chain issues, a shift in where workers conduct their work, and more. With an increasingly global economy shrinking the world more and more, small businesses have more variables than ever to consider. Being adaptable and prepared are the keys to surviving such disruptions.
Luckily, there are many options available for business owners to offset the negative effects inflation may otherwise bring. Knowing where to deploy these options and how can make huge differences in your bottom line during a critical period in your company’s life cycle. Each industry is different, but practical decisions combined with critical thinking can keep your processes running smoothly and profits coming in. Take a look at our quick guide and deploy these tips to offset inflation’s effects on your small business.
Determine Where to Raise Prices and Where to Cut Costs
When the cost of doing business rises, tough choices need to be made. Profitability should be the aim of all companies and raising prices to offset rising costs can feel like a no-brainer, but knowing when and how to do so is key. Small businesses run the risk of alienating loyal customers and failing to attract new customers with price increases.
On the other hand, if your company is bleeding due to rising costs, you’ll eventually have to shut up shop. Similarly, cutting costs can also help you stave off the pain of high inflation, but this too is a delicate act. Now more than ever, businesses are held accountable by customers. Thanks to the Internet, reviews, recommendations, and reputations can change almost instantly. Disgruntled customers can take out their frustrations should say your company skip on the quality they’ve come to expect and harm your business.
The best practice for any small business is to take the time to audit itself and understand which areas can afford such changes. This should be a routine part of any company’s operation, but during periods of high inflation, it becomes even more invaluable. Small changes can lead to big results. Price increases should not be so large that your company begins to discourage purchases from your customer base and cost-cutting measures should still allow for the same quality of delivery for your product or service.
Use Manageable Debt to Reinvest in Your Company
Any small business owner knows that manageable debt is a powerful tool that can help grow any company. If you are facing problems related to inflation, consider reinvesting in your company during this time. This can be done in different ways depending on the needs of your organization including:
- Purchasing necessary real estate.
- Investing in technology or equipment necessary to fulfill orders from new customers.
- Marketing to increase your market share as inflation may change the scope of your industry.
- Preparing for market conditions after high levels of inflation.
- Securing materials from suppliers in bulk to save on costs and better fulfill orders.
Business owners have plenty of options available, but no two organizations are the same. Whichever works best for your company’s needs, you’ll want to identify and execute to set your small business up for success.
Invest In Your Employees
There is another way small businesses can reinvest in themselves and it comes down to investing in the people that make everything happen. Employee retention has many benefits. You don’t have to take the time to train a new employee, your teams continue to build synergies with long-time employees, you can trust that the job will get done, etc. A common way to cut costs for small businesses is to reduce hours or lay off their employees. Though these decisions are never easy and can make sense at times, so too can investing in your employees during high periods of inflation.
On average, businesses will spend around a third of a position’s wages on replacing personnel. This also means an interruption to your business operations, as well as the potential for lost order fulfillment due to the inability to complete orders for clients. Reallocating existing revenue or using a loan to invest in your workforce can help you keep talent and better complete order fulfillment.
Although investing in your employees is a cost no matter how you slice it, wages are just the tip of the iceberg. Many different options go beyond a wage increase available to small businesses that can provide true value to your employees that benefit both your small business and the employee:
- Tuition reimbursement.
- Retention bonuses.
- Specialized training and educational opportunities.
- Flextime and the ability to work from home.
- Improved health benefits.
- Childcare and maternity services.
Short-term inflationary disruptions shouldn’t take the focus completely off of long-term organizational goals. A good worker is difficult and expensive to replace. Inflation only compounds this matter.
Re-examine Your Company’s Processes
Another way small businesses can reinvest and fight inflation is to take a closer look at the processes that make the organization operate. Studies have shown that less than 70% of businesses have proper processes in place with as little as 4% of these organizations actually managing them. Assessing the way your small business operates from head to toe can help you improve productivity, discover new opportunities, increase employee morale, and save money all the while.
Identify New Target Markets to Generate Revenue
Investing in new marketing efforts is a moot point if it is not accompanied by identifying the right target markets for your small business. Inflation brings market changes to industries and can create new and emerging markets. This means that a revenue source that once brought in money may no longer be available, but other market segments, if found, can replace and even overtake these sectors.
A change in the economic climate can also create new opportunities. Inflation presents challenges and changes for virtually everyone across any industry all at once. Consumers, shareholders, and workers are all affected by the rising costs of products and services and within this shake-up, small businesses may find new ways to serve their customers. By taking the time to find these new areas of need, your company can provide solutions and use inflation to its advantage. Whether this means having a competitive advantage to provide a necessary service or product at a lower cost than the competition or using a barrier of entry towards competitors to broker agreements that source materials in a more cost-efficient way, small businesses have a chance to make waves within their industry.
Navigating Commercial Insurance During Times of High Inflation
Cutting costs is always important for any small business, and while this is especially true during times of higher than normal inflation, you’re going to want to rethink how you do so regarding your commercial insurance policy.
The right commercial insurance policies should help you protect your company’s finances, not hinder them. Commercial insurance should be viewed as an investment rather than an expense. It is important to remember that as a business owner facing times of abnormal inflation, any losses suffered will cost that much more to restore. This will lead to even lower profit margins and harm your company even more:
- As the cost of living rises, so too do the wages of workers across Texas. This means that if you need a job done and will have to hire a general contractor or legal representative after a loss, you’ll be paying more out of pocket without protection.
- The same is true regarding your liability. If you’re going to have to pay to restore the loss of another party as a result of negligence from your employees, expect those costs to increase. Enrolling in the right policies offsets these costs and helps you maintain comfortable profit margins.
- Accidents can happen. This is why all small businesses and contractors are required by law to carry a minimal amount of commercial auto insurance when conducting business that requires travel by vehicle. Again, higher inflation rates can equate to higher costs to restore losses.
Not having commercial insurance policies can do far more harm than good. The best approach for small businesses is to take the time to review their policies and compare their coverage among a variety of providers.
By comparing your coverage, you’ll be helping paint an up-to-date picture of what your coverage needs look like. Markets change and businesses must adjust. Reviewing your insurance coverage is a big part of that:
- If costs have changed, so too should your coverages. Business insurance policies have limits like any other and if your current policies are outdated, you’ll want to increase those limits to stay covered.
- Businesses change and grow as do economies. Inflation can play a role in both and as your company changes so too will its protection needs. Reviewing your small business coverage needs can best protect you against untimely losses.
Failing to look over your coverage options can cost you money and possibly leave you unprotected. We understand that comparing business insurance coverages can take up your valuable time, and Freedom Insurance Group is here to help.
Since 2005, we’ve helped small businesses all across the Lone Star State protect themselves against potential losses through innovative, affordable insurance products. Our partnerships with more than 25 top-rated insurance providers mean that you’ll receive the best coverage for the lowest cost. We compare your policy among these trusted brands quickly and accurately to provide you with personalized coverage that meets your company’s needs.
We may not be able to prevent inflation from rising, but we provide you with the tools you need to weather the storm while protecting the ship. Speak to one of our agents today or use our free online business insurance quote tool for an accurate estimate.