Business owners across the country have been hit by both inflation and supply chain disruptions. According to a new special report by MetLife and the U.S. Chamber of Commerce, inflation is a top (and growing) concern of small business owners. One in three small business owners say it is the largest challenge for the small business community at this time.
Curtis Dubay, the senior economist at the U.S Chamber of Commerce, clarified that inflation is not solely caused by business owners raising prices. Business owners are responding to their own supply and demand issues, shortages of workers, and federal and state monetary policy. Dubay says, “Businesses raise prices when input prices rise. Both the prices of materials and labor are rising rapidly because of shortages and strong demand. Businesses can either see their margins shrink and start losing money, or they can raise prices to offset those higher costs.” Dubay also feels like inflation is likely to last through the middle of the year at least.
There are several different strategies that small business owners are using to cope with their rising costs. According to the MetLife and U.S. Chamber of Commerce Survey, two-thirds of small business owners have reported raising prices, and about 40% report having either taken out a loan or reduced staff, or both. In the local area, there are still several COVID-related loans available for small businesses. Business owners can contact the SBDC to learn more about available loan programs. Many have a very low interest rate.
Other strategies that may help your business cope with inflation include:
1. Make sure you know your numbers. If you have a solid idea of what your costs are and how much they have risen, you will know better how to adjust your pricing. Adjust your pricing strategically, not just across the board. Knowing the most popular and highest profit items will help you know where a small change in price can have the most impact for your business. Also, there may be places to make pricing changes where your customers are less likely to notice, like for example in add-ons like dessert.
2. Sometimes instead of raising prices you may be able to adjust the size of your product. My favorite Mexican restaurant made its enchilada plate smaller by having them go across the narrow side of the plate instead of the long side. I noticed, but I didn’t mind because I always eat too much there anyway!
3. Purchase key goods your business needs now. Most experts are predicting inflation will continue to rise, at least through the summer. Also with supply chain uncertainty it is a good idea to have a supply of important inputs on hand.
4. As interest rates start rising, it may be more beneficial to start putting money into interest generating accounts instead of in a simple savings or checking account. Also if you foresee a loan for your business in the future, you may want to go ahead and move quickly on it before rates increase. If you have high-interest debt, especially on credit cards, now may be the time to refinance with a business loan with a better rate. Property and equipment values tend to keep pace with rising inflation, so now might be the time to make those longer-term asset purchases.
5. Talk to your financial advisor about your investments. Now might be the time to make changes in your portfolio to take advantage of the changes.
6. If your suppliers, landlords, higher-compensated employees, and others you have contracts with are willing, consider setting up a long-term contract with them at fixed rates. This might help buffer you from increasing costs in the future.
7. See if there are ways you can cut costs and improve employee productivity. With the tight labor market you will want to work with your employees to figure out ways to improve. They may have good ideas for how their jobs can be done more efficiently.
8. Check if your company is paying for products or services that aren’t being used and cancel those items.
9. Consider substituting materials. You may find alternate products or ingredients that will save you money.
The Small Business Development Center provides free and confidential counseling and can help business owners navigate these issues. You can reach the SUNY Canton SBDC at (315) 386-7312, SUNY Canton SBDC at Clinton Community College at (518) 324-7232, or the Watertown SBDC at JCC (315) 782-9262.