In the midst of pandemic recovery, small businesses are feeling the weight of yet another economic setback: inflation.
According to the U.S. Chamber of Commerce’s Q4 2021 Small Business Index survey, 71% of owners report that rising prices have had a significant impact on their business in the past year. And economists agree that this high inflation could be long-lasting.
Inflation can be tough for small businesses, but the right strategies, support and resources can help them mitigate the challenge, says Carolina Martinez, CEO of the California Association for Micro Enterprise Opportunity, or CAMEO.
Here are three ways you can lessen the impact of inflation on your small business.
1. Raise your prices in the right way
It can seem like raising prices is the “easy way out” to combat inflation, but your business can gain more from this strategy than you might think.
“Survey the marketplace and see if you are underpriced for your services or goods,” said Matt Sotir, Northeast regional vice president of Equitable Advisors, in an email.
“One client, a landscaper, recently looked at his competitors and realized he was 30% lower than most others in the area. He was able to raise prices modestly and not lose any customers,” said Sotir, who works with small-business owners and entrepreneurs as an investment advisor.
And if you do decide to raise prices, there are creative ways to communicate with your clients that can benefit your business in the long run.
Jacqueline Snyder, co-owner of The Product Boss, a small-business coaching platform, recommends bringing your customers in on the story.
For example, saying something like: “We're a small business, prices across the board have gone up. We've tried to keep this going for so long like this, but at this point in order to survive — and we still appreciate your business — we have to raise our prices.”
Snyder also suggests taking your customers through price changes by running a “last-chance” promotion, where you tell them that your prices are going up on a certain date due to inflation, but frame it like a sale. This way, you’re encouraging them to buy from you now at your lower prices, while also notifying them of the price increases.
2. Refine your business operations
The high-inflation environment has given small-business owners a pressing need to reevaluate the specifics of the way their businesses function.
“Consider a well-thought-out expansion strategy or adding alternate lines of goods to increase your profit margins,” Sotir said. These types of development opportunities can help increase sales, which in turn can help offset fixed costs like rent or machinery, he said.
Snyder says business owners should take stock of their current bestsellers and use them to their advantage. If you lean into your bestsellers and try to sell more of them in more places, you’re not only locking in something you know is successful, but you can also start to negotiate your pricing with manufacturers, she says.
You also should have a few backup plans for manufacturing in the case of continued supply chain delays. Buying in bulk with certain vendors, especially when you’ve negotiated lower prices, Snyder says, can also lead to better profit margins.
3. Revisit your finances and work with a financial advisor
Despite rising costs, you can capitalize on tools that banks are offering right now to incentivize spending, like credit card rewards and high-yield business savings accounts.
Use rewards-earning credit cards as much as possible (without overextending yourself) to gain something back from your spending, says Brandon Reiter, CEO and founder of Skyview CFO, a virtual bookkeeping and financial services company geared toward small businesses.
Some credit cards feature valuable offers, especially if you travel a lot, including airline credit cards and cash-back credit cards. As inflation rises, you don’t want to spend on a credit card that doesn’t give you any value back, he says.
This is also a good time to consider refinancing debt, especially if you have high or variable interest rates. If you can refinance a variable interest rate to a fixed rate, you’ll limit the danger of adjustable rates rising in the future, Sotir said.
For assistance in identifying the best financial strategies for your business, especially during this challenging time, CAMEO's Martinez recommends that small-business owners work with outside advisors, turning to organizations that offer free or low-cost help with financial planning, such as your local Small Business Development Center.
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Randa Kriss writes for NerdWallet. Email: firstname.lastname@example.org.
The article 3 Ways to Lessen the Impact of Inflation on Your Small Business originally appeared on NerdWallet.