by Jennifer Wedzik, SBDC Business Advisor
I recently saw a survey that QuickBooks had completed in spring of this year that showed that business owners responding felt inflation was their biggest threat right now. Plus, virtually all (99%) said they were concerned about rising product and labor costs. It’s a lot to stay on top of, but you do need to understand its effects on your business. Let’s try and talk through some strategic answers about dealing with this concern:
1. Think about your customers and your products/services. All of our customers are pretty concerned about Inflation as well as - and it's showing up in changing spending habits trends. We see people are going out less, spending less on big ticket items, weighing travel decisions more heavily, and so forth. How will your products be affected by changing customer trends? Take a look at news sites and articles on Google about your product or service and industry impacts. Many of you might be facing a tough decision - raising your prices. It is a scary decision! BUT...sometimes you do need to raise your prices. A couple of things to consider: 1) do it slowly. 2) test on different products - don't just raise across the board, and 3) talk to customers along the way - be honest and get their feedback.
Other ideas to explore, outside of the pricing area, when it comes to your products/services: changing your materials or suppliers, adding a new product, adjusting your marketing strategy, or changing how or amount you order of inventory and supplies (sometimes you can get good discount for different quantity levels or paying up front). Not sure? Talk to customers, suppliers, other business owners, and maybe get some advice from your local SBDC along the way.
2. Look honestly at your financial situation.
With inflation comes additional cash flow challenges for small businesses. That same Quickbooks survey showed more than two-thirds of respondents say they’ve encountered cash flow problems this year - and number one cause for this - rising costs. For many of you, part of this financial situation analysis starts with reviewing your business expenses and identifying where you can cut costs. Look hard at non-essential spending. Spend some time looking at prior year comparison reports, industry comparison reports, and doing some research on some of those bigger ticket purchase or expense categories.
Secondly,take a hard look at your safety net - are you able to get through some continued tough times? This includes looking at savings, credit cards, and lines of credit. This is the time to get secure flexible funding options like a line of credit - consider how you can be used to better manage expenses or grow your business. Maybe use it to:
- buy material and supplies in a larger quantity at lower prices,
-get a discount on early payment (look at some of calculators online to see if worth it),
-invest in more efficient operations or equipment (some help might be needed to look at this
-ramp to up your marketing efforts to attract new customers - if you are maybe gaining customers from someone else is too high priced now
-payoff high interest credit cards as save interest costs
Hope I have given you some strategy for your steps going forward! Need some help - don’t forget to ask for help from us, your SBDC. Whether it be pulling some reports and financial analysis for you or talking you through pricing and promotions decisions, we can help you along the way