This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.
This article was contributed by our friends at Inc.
As we all gradually get over the massive economic and societal hurdles the Covid-19 pandemic brought about, the U.S. economy is sliding into more drama: inflation and recession.
Prices are rising, supply chains are still in turmoil, and customers and business owners alike are pinching every penny as their lives get more expensive. Economists agree that this high inflation could be long-lasting and play a major part in the oncoming recession. They see hard times ahead, particularly for small business owners and new entrepreneurs.
According to the U.S. Chamber of Commerce’s Q4 2021 Small Business Index survey, 71% of owners report that rising prices have significantly impacted their business in the past year. Needless to say, inflation is affecting all of us in one way or another, especially entrepreneurs and businesses trying to stake their claim in the market. Plus, the recent report that the Consumer Price Index rose 8.5% for the 12 months ending in March — the highest 12-month increase since 1981 — has kept inflation and supply chain concerns in the news cycle.
Dr. David Phelps, author of Inflation: The Silent Retirement Killer, describes today’s inflationary environment as playing your favorite childhood game, and then someone comes in and says that all the rules have changed.
He explains, “We’ve had 40 years, from 1980 to 2020, where we’ve had disinflation and low interest rates, but then we turn the corner to face completely new rules. We have rapidly growing inflation now, and, as a result, higher interest rates. This means we have to learn how to do things differently.”
Your old strategies and how you achieve victory are completely different — in fact, if you play by the old rules, you’re going to lose. It can be a change of our paradigms — to change something we’ve understood for years. And that’s precisely the situation we are in today.
“The problem is that what happens during an inflationary environment like we’re facing now, the cost of doing business, the cost of borrowing money — it all goes up, and that means our profit margins go down,” Phelps said.
Not only are there higher prices and labor issues, but rising interest rates are also putting the brakes on consumer spending. Less buying power reduces buying volume and frequency, slashing revenue. This moves into the B2B space as well, with companies impacted by consumer spending and reducing their spend on B2B products.
It’s a big deal, but, if handled correctly and with the right resources, businesses can not only withstand these economic difficulties, they can thrive. I began my business in the middle of a recession — 2008— and we grew 400% during that time. We grew again during the pandemic, and now as we face more economic uncertainty, one thing I am certain of is our ability to pivot and learn new rules.
Here are some strategies that will help businesses withstand — and thrive — in spite of inflation and the recession.
Raise Your Prices the Right Way
It may seem like the easy way out to combat inflation, but your business can gain more from this strategy than you might think. Avoid turning off customers with dramatic across-the-board price increases. Instead, raise prices slowly, in modest increments, and only on the products that impact your margins the most.
Use creative ways to communicate how your services can benefit customers in the long run to help them understand your value — even at a raised rate — so they can justify the investment. For some companies, running a “last-chance” promotion will encourage customers to buy from you at your lower prices while notifying them about the price increases due to inflation.
Refine Your Business Operations
Go back to the drawing board to identify core services or products, focusing on those that provide the best ROI. Cut any products or services that aren’t being used, and consider whether there are ways your team can tighten up processes and increase efficiency.
Time is money, so the more efficient you can become, the more money you can save on operational costs. If you find that you have staff members that don’t have a full plate — but you aren’t willing to undergo layoffs (which should be avoided at all costs) — take it as an opportunity to up-skill your staff. Set them up to train in areas of weakness and determine how they can best serve your company.
Revisit Your Finances
Despite rising costs, you can capitalize on the tools some financial solutions offer to incentivize spending, like credit card rewards and high-yield business savings accounts. And don’t ignore alternative banking options.
The digital acceleration we’ve experienced over the last few years has brought innovative new banking options to the table, like neobanking platform Nearside, a mission-driven financial solutions company. Nearside is committed to providing core financial services for America’s 60 million freelancers, small businesses, and unbanked individuals who have no choice but to continue to survive.
While the overall economic conditions are volatile right now, American businesses have more tools at their disposal than ever to weather this unpredictable storm. Inflation and recession can be challenging for businesses big and small, but the right strategies, support, and resources can help them adapt, survive and thrive.