After weathering the nearly insurmountable hardships of the COVID-19 pandemic, small businesses have been hit with a new challenge: the unprecedented inflation rates of 2022. (We’re ready to retire the word “unprecedented” too…but with the annual inflation rate for the U.S. sitting at 8.3% for the 12 months leading up to April 2022, it’s the only one we could think of!)
With prices skyrocketing, the supply chain still limping along, and some pretty heavy clouds on the market horizon, it makes sense to be worried about the future of your small business. Who wouldn’t be? After all, the last period of extended inflation in the United States led to a 42.2% increase in business bankruptcy filings.
So how can your small business weather this next storm?
What is inflation?
Straight from Merriam-Webster, inflation is a “continuing rise in the general price level, usually attributed to an increase in the volume of money and credit relative to available goods and services.”
And inflation isn’t always a bad thing. According to the Federal Reserve, policymakers typically agree that inflation rates between 1.5% and 2% each year are a clear sign of a healthy economy. If rates are too low, the economy could fall into deflation. This would cause prices and wages to fall in a harmful way. But if rates are too high the economy can fall into a vicious cycle.
What’s a small business owner to do? First of all, don’t panic! We’ve put together 6 steps to help you survive (and thrive!) in any inflationary period.
1. Stay on your toes.
Stay flexible, and be ready to make adjustments. You’ll need to cut costs without sacrificing the quality of your product, and raise prices without losing loyal customers. These are not easy tasks, so don’t be afraid of a little trial and error!
It will take plenty of creativity to make it work. You might consider enlisting the help of a financial expert to help you weather the inflation of 2022 and prepare for future inflationary periods.
2. Be efficient.
Automation is your friend. If you’re doing everything manually, you’re wasting time and costing yourself money!
To take back some precious hours, write down each business activity you do on a daily basis. Can you find any tasks that are especially repetitive? Processes such as email, invoices, and taking inventory can be easily automated. Choosing to rely on business management apps or SaaS platforms can make these processes quicker and reduce human error.
The work you put into accounting and bookkeeping can be particularly time-consuming. Hire a professional to take those tasks off your plate! (Unsure what to look for when hiring a financial expert? Check out our recent blog post!)
3. Focus on employee retention.
Improving efficiency does not mean you should micromanage or mistreat your employees. Treat your people well. They’re your most valuable resource! When boosting productivity, focus on processes as a whole rather than individual performance.
With a record 4.53 million workers quitting their jobs in March 2022 alone, it’s time to re-evaluate your employee retention strategies and compensation packages. Find out what’s working and what you can improve through employee surveys, and encourage your team to ask for what they want.
Do you support workers in maintaining a healthy work-life balance? Could you provide more PTO? Are you offering opportunities for employees to grow and learn new skills? All things to consider when keeping your team happy!
4. Follow up on unpaid invoices.
Maintaining a steady cash flow is vital for your financial health during an inflationary period. Keep a close eye on your records, and make sure you’re collecting payment for any services rendered. A bookkeeper can be especially helpful when you’re looking to stay on top of delinquent payments.
You have to be paid, but you also have to be empathetic. Understand that your clients are likely experiencing financial hardship too. If it’s possible for you, work with your clients and offer payment plans that will keep you in business without draining them dry.
5. Avoid sticker shock.
Don’t sacrifice quality to avoid a price hike, but do make sure you’re only raising prices that actually need to be raised. Any necessary changes to your pricing should be gradual. If your prices suddenly jump up all at once, you could turn away the loyal customers you worked so hard to get!
Be specific and intentional with your pricing adjustments. Which products or services have become more expensive to provide? Be open and honest with your clients, and cite the specific supply chain difficulties causing the increase in prices.
6. Keep your eyes ahead!
It may feel like the financial woes of 2022 will never end, but no inflationary period lasts forever. It’s important that you don’t let the demands of managing this crisis prevent you from working towards your long-term goals!
When times are difficult, it can be impossible to see the wood from the trees. A trustworthy financial expert can help you look at the big picture and prepare for the future.
With a solid team of accountants on your side, you’ll be able to create a business and financial plan to achieve your goals and pull through all inflationary periods to come.
To get started, contact KYN Accounting today! We offer accounting and bookkeeping services to take care of your day-to-day financial tasks and set you up for long-term success.