The pain of higher prices continues for small business, consumers, basically everyone.
Record gas prices drove inflation to 8.6% for the 12 months ending in May, higher than the pace in April, according to the latest Consumer Price Index, the government’s basic inflation measure.
Drivers fill their tanks with gas at a gas station in Astoria, New York City, June 1, 2022. As gas prices remain near record highs, New York has become another state to suspend its gas tax in an effort to give drivers some relief at the pump. The suspension of the 16-cents-per-gallon tax runs from June 1 through the end of the year. Why the average gas prices is at $4.99 a gallon and how high it’ll go The reading for core CPI, which strips out volatile food and energy prices, posted a 6% increase over the same period, higher than the previous month’s level. Both readings are among the biggest jumps in prices experienced by consumers since 1981. By Chris Isidore, CNN Business Updated 10:53 AM EDT, Fri June 10, 2022.
Although it’s hard to predict how the economy will fare when prices go up, there are some strategies to mitigate the impact of rising inflation. Inflation is a constant concern for business owners, especially for small-scale operators. Rising prices can affect small businesses and make it impossible for them to make ends meet. But don’t lose heart. There are some steps to this problem, which you can implement immediately. To help combat inflation, here are four tips for small businesses to survive rising prices:
1. Review prices and profit margins regularly. Raise prices judiciously.
Rising inflation has taken its toll on small business owners, and this trend could continue for some time. Despite the fact that the rate of inflation is expected to drop in later 2022, the tight labor market and anticipated rise in Fed interest rates will continue to squeeze margins. For this reason, many small businesses are adjusting their prices to compensate for increased costs. But if you can keep your prices flexible and customer-centric, you can thrive even in periods of rising inflation. By monitoring the competitive landscape, small businesses can remain competitive and retain customer loyalty. Increasing prices, however, may not be the best option for all businesses.
2. Look for ways to save. Start with reducing overhead costs.
Rising inflation is causing a rash of cost increases for businesses. While many of these increases are temporary, the effects of high inflation on small businesses can be severe. Rising costs are making it increasingly difficult to survive and remain profitable, especially for small businesses. However, there are ways to combat rising costs without firing your employees. One example to do so is to go paperless. Going paperless will reduce the amount of paper you need to keep track of your business, therefore reducing an overhead cost.
As prices on more indirect costs—like overhead—increase, this could be a time to review what is really providing a return on investment in your business. Reviewing software subscriptions and levels, bidding out insurance rates and cutting unnecessary expenses and inefficiencies can all assist in maintaining your bottom line. – Jamie Trull, Forbes Councils Member
Forbes Business Council
3. Explore opportunities to improve & optimize productivity.
The more optimal and efficiently you and your employees work, the higher your profit margins are likely to be. Start by utilizing technologies and apps that track and improve productivity. Make sure to remain sensitive to employee needs and feelings while seeking to improve productivity. As inflation rises, employers and employees are in this together. It’s important to communicate that strategies for the business and making your employees part of the conversation.
4. Forecast what-if scenarios.
Develop or use your current forecasting models to include “what-if” scenarios to test the potential impact of inflation, such as:
- Wages increases of 25-50%
- Raw material prices doubling
- Supply chain disruptions causing 25% or greater revenue delays and inventory build-ups
Anytime you are forecasting what-if scenarios, you’ll want to consider questions about your small business such as:
- How can I manage risk now with preventative measures?
- What evasive maneuvers can I take in each scenario?
- Will I have enough cash in all scenarios?
- What metrics and KPIs will I measure as leading indicators that one of these scenarios is occurring?
Prepare your small business for continuing inflation.
Don’t sit and wait for this to pass by, hoping for things to get “back to normal”. No matter what industry you operate in, you need to review your financial position regularly with your team and accountant. If you don’t know where to start, reach out to TSAT!
At TSAT, we know that a great businesses need to operate at high levels of service, accuracy, reliability, and throughput. We also know that the only way to ensure these things are achieved is to develop a comprehensive set of accounting and finance policies and procedures and to regularly train all personnel involved in the management and control of the company’s software. Only by taking steps toward accounting, quality assurance, and finances can a small business accounting department expand its business and improve its profit margins. It takes a little work to make sure that every aspect of small business accounting is running at full capacity, and we are here to help!
Here at TSAT, we are not simply tax preparers. We work with you to provide a 360-degree strategic financial advice, including small business operations and investment guidance. We will help you stay ahead of the curve when it small business or personal investments!
If you are a gig worker or small business owner looking to grow your business, TSAT’s AMAZING team considers much more than just your taxes!
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