5 ways to protect your small business against inflation

Inflation is a reality that businesses, large and small, grapple with. Its presence can influence the pricing, operations, and even the strategic planning of an organisation.

But that doesn’t have to spell gloom and doom for your small business. With the right approach and informed decisions, business inflation can be managed, if not mastered. This article will guide you through a better understanding of inflation and more importantly, strategies for dealing with inflation. Here’s to being better informed and staying ahead of the curve.

What is business inflation?

In its simplest terms, business inflation is the rate at which the general level of prices for goods and services rises, causing the purchasing power of currency to decline. Remember the joy of buying your favourite morning coffee at a certain price? With inflation, you’ll see those prices nudge upwards, so you feel your dollar stretching a little less each day.

Remember the economic whirlwinds of 2005, 2008 and the most recent 2022? For small business owners, these figures represented real challenges that directly impacted their bottom lines and day-to-day operations.

How does inflation affect small businesses?

With rising business inflation, every element that makes your small business tick, from the raw materials you use to the lights you switch on, could see a surge in costs. And in a world where competition is rife, absorbing these costs while maintaining quality becomes the real challenge.

What is causing business inflation?

So, what’s fuelling this rampant inflation? Several culprits come to mind. Global events, such as the 2020 pandemic or the war in Ukraine, have sent shockwaves across economies. Couple that with supply chain disruptions, and you’ve got a recipe for skyrocketing costs.

How to combat business inflation

Inflation doesn’t have to spell trouble. With the right knowledge, you can build a inflation proof business that can weather any storm. Here are a few strategies for dealing with inflation that have stood the test of time.

1. Making price adjustments

In the face of inflation risk, adjusting prices is less of a choice and more of a necessity. As costs soar, businesses must find a way to balance the books. Often, this means a subtle upward nudge in prices.

Customers appreciate honesty. If you’re adjusting prices due to business inflation, be upfront about it. A little heads-up can make that extra dollar or two easier to swallow. And it can go a long way in maintaining customer trust.

For service-based businesses, think about rolling back certain discounts or tweaking service packages. Sometimes, the trick isn’t a direct price hike, but adjusting the extras around them.

2. Managing your inventory effectively

In the realm of inventory, more is not necessarily merrier. Oversupplying increases storage costs, ties down resources and can lead to potential write-offs.

Remember that when your business is facing inflation risk, every penny counts, and wasted stock is wasted money. So aim for a balanced inventory – one that satisfies demand without choking your resources.

3. Managing your supply chain risks

Just as you wouldn’t put all your eggs in one basket, banking on a single supplier during inflation risk can be risky. By diversifying suppliers, you’re not only ensuring supply but also negotiating power, which can be vital when costs rise unexpectedly.

Venture beyond your neighbourhood. Build international partnerships. Not only does it expose you to global best practices, but it offers a buffer against local supply disruptions.

Furthermore, regularly checking your supply chain will help you identify potential weak links. Spotting issues before they flare up can be the difference between a supply hiccup and a full-blown halt in your business.

4. Optimising business operations

Think of your business operations as a workspace. A cluttered desk means wasted time finding what you need in the moment. Similarly, a cluttered business process slows down efficiency. Trimming wasteful processes is the corporate version of decluttering, ensuring every action has purpose and value.

5. Having varying financial reserves

Every savvy business owner knows the importance of a backup plan, even when you’re not dealing with business inflation. Gold, precious metals, and treasury bonds have historically offered stability during periods of inflationary risks. By diversifying your investments, you provide your business with a safety net, should one asset underperform.

From uncertainty to growth

In the realm of business, challenges are as inevitable as the morning coffee rush. But it’s not about fearing economic uncertainty. Rather, it’s about understanding and learning how to navigate through them. Equipping your business with the knowledge and strategies for dealing with inflation ensures not just survival, but growth. Whether you’re revising prices, reassessing supply chains, or considering having diverse financial reserves, it’s about staying proactive against times of inflationary risk.

BizCover keeps business insurance simple during complex times

The ups and downs of business inflation may keep you on your toes, but when it comes to business insurance, BizCover keeps your livelihood protected without the drama. After all, with the challenges your business faces, shouldn’t insurance be the easy part?

With BizCover, you can get instant quotes and compare options for your business. Begin your hassle-free insurance journey with us today and stay ahead.