The Consumer Price Index surged 6.8% between November 2020 and November 2021, and then 8.5 percent from March 2021 to March 2022, the most significant yearly gain since December 1981, according to the Bureau of Labor Statistics reports.
There are often stories concerning inflation, supply shortages, price hikes, and stock market crashes in the news these days. In this period of soaring inflation, it's more critical than ever to guard your small business. Prices are rising everywhere, and if you don't take adequate precautions, the future of your business may suffer.
What Causes Inflation?
Increased costs (or inflation) might occur when demand exceeds supply, like during an economic boom. Consumers will likely buy more products and services if they have more money to spend. Businesses may raise prices due to the increasing demand, either because they don't have enough supply to accommodate it or because they realize they won't lose their business.
Inflation can occur regardless of economic conditions; limiting oil output can hike gas costs, and supply chain interruptions can cause manufacturing to cease. Additionally, COVID-19 has forced companies to close and clog transportation, putting downward pressure on demand. Increasing oil costs are partly to blame, as are soaring gas prices.
Inflation is particularly difficult for small firms.
Financial institutions sometimes restrict borrowing criteria during periods of more significant inflation, resulting in a scarcity of cash. In addition, small business owners may lose money as supplier costs rise, worsened by clients who are also suffering from inflation and are late paying their bills.
How Does Inflation Affect Small Businesses?
As a result of increasing inflation, supply chain bottlenecks, and labor challenges, small firms are forced to scrutinize their spending more closely.
Because of constantly having to raise their prices, they are losing many consumers. Therefore, unlike big companies with large capitals, they cannot afford to maintain their prices without facing losses.
But what happens to small businesses during inflation?
- People will not be able to purchase as many items or services as they once could.
- You could also have to deal with rising staff expenditures.
- The cost of running your firm may increase.
- You could have to pay more for raw goods, and certain goods can be scarce.
Businesses could be forced to shut down if proper preventive measures do not combat inflation.
How Can Small Businesses Survive Inflation?
While inflation does pose specific challenges, there are measures you can take to protect your company and avoid losing your business.
Invest, Invest, Invest
Having a lot of cash on hand might be dangerous during inflation. Your cash reserves may lose buying power as inflation rises. Instead, consider putting that money into the stock market to stay up with constantly growing prices.
When interest rates start to rise, make it a habit to put additional money into stocks with attractive interest prospects and savings accounts. You might also want to consider bond funds because the returns, no matter how minimal, will start to matter. All money invested smartly is better than money lying around idle.
If you feel you aren't experienced enough to invest independently, speak with a financial counselor or your accountant to determine which kind of assets are best for your current economic circumstances and the amount of risk you're willing to take.
Rework Your Pricing
Inflation indeed comes with its challenges, and your business has to adapt to these changes to survive. If costs are constantly on the rise, you might want to reconsider your prices or make some sacrifices.
Instead of boosting prices across the board, analyze supply-specific problem areas and hike prices accordingly. This is a tough time for everyone but business owners and consumers, so there are high chances that your clients will understand the need to change prices.
If you're in the food and service industry, your business might have taken a harder hit than most. First, determine where you need to boost pricing and take appropriate steps.
Even though it's critical to adapt to changing financial climate and modify pricing as needed, keep in mind that inflation isn't forever. Keeping flexible pays off in the long term.
As prices are increasing, hiring costs are also on the rise. However, quality employees are not something you can compromise on if you want your business to run well and thrive during an economic crisis. Fortunately, there are ways to keep good talent on your team without going bankrupt.
Remote work and outsourcing have been a life-saver for businesses, especially in financially difficult times, like the COVID-19 pandemic. Thanks to virtual assistants, entrepreneurs could access top global talent at affordable prices. In addition, these remote workers could take care of administrative, personal, and accounting tasks and efficiently help businesses run their businesses.
So, if you’re looking to hire staff during inflation, consider hiring remotely. With virtual assistant outsourcing agencies like Wishup, we handle the screening and vetting process and hire only the top 1% of applicants. As a result, you are guaranteed to get a qualified assistant dedicated to the growth of your business. And if you’re still not fully satisfied with your VA, we guarantee you an instant replacement, no questions asked.
In a time of inflation, the wise business decision is to cut costs wherever you can without hindering the quality of work, and hiring remotely is an efficient and fool-proof way to achieve that.
If you think automation is only for big businesses, think again. One of the best ways to cut costs is by reducing human labor as much as possible. From customer care to social media, many software and tools may help you automate monotonous chores.
Automate as much of your everyday labor as possible. You'll be surprised at how much money you can save. In addition, automation enhances customer service by reducing mistakes and streamlining operations. It improves the speed and accuracy of service, which is a massive bonus in the customer's eyes.
Have Multiple Revenue Streams
Having multiple sources of revenue or discovering passive cash streams are two more ways for your small business to survive the inflation period. Then, if one channel or aspect of your small business fails, you can rely on others and never feel like you're stuck in a helpless place with no means of income.
One way to do that is by investing, as we mentioned earlier. However, there are also other ways to generate passive income. Consider, for example, you are a food business. You can conduct masterclasses and online cook-along sessions. The best part is that since everything can be done remotely, you don't even need to rent out a space to do it and save money further. If you do not know social media, you can hire a virtual assistant to help you set up these virtual events.
Be Prepared To Take Loans If You Have To
Many business owners hesitate to take out loans in times of financial crisis, but not having access to money in difficult times is even worse.
Around 45% of entrepreneurs took out loans to sustain their business in 2021. In any case, it’s always better to be prepared and know your options for when things might go sour. Consider hiring a virtual bookkeeping assistant who can help you analyze your financial situation and your options when it comes to taking out a loan.
A business loan could help your minor business deal with escalating expenses, avoid cash flow problems, and keep things operating smoothly. Having more disposable cash —with a solid plan for using the money and paying down debt is a fantastic approach to ensure that your company can stay prepared for whatever may come.
Protect Your Business
Inflation is tough on everyone, and it can be scary thinking about the future in these unpredictable times, especially as a small business. The best you can do is take the necessary steps to be prepared for any difficult situation that may arise. We hope you found this article helpful and will incorporate these steps into your business strategy.
If you want to build your remote team with Wishup, click here to schedule a free consultation and hire a virtual assistant.
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