Proclaimed to be the wisest man who ever lived, King Solomon, in the book of Ecclesiastes, wrote, “…There is nothing new under the sun.”
This statement is particularly true when we consider the cyclical nature of economies.
We are currently in an inflationary period that most American managers and consumers have not experienced or had long since forgotten.
As a young business leader during the 80s – I witnessed firsthand the extreme inflation of the period we now call the Great Inflation.
If you aren’t old enough to remember conducting business in the 70s and 80s, you won’t be able to appreciate fully how drastically the economy changes when inflation rises above 6–8%.
What can business owners do to get ahead of the game?
Here are 10 tips.
- Cash is “King”, manage it well
Be sure to manage collections in a timely manner and seek extended terms with suppliers.
Try to build a cash reserve to cover a couple of months of expenses.
Related to this…
- Look for a business line of credit to help the business get through a difficult period
Use the line for emergencies only.
Remember that during very difficult recessions, lenders can cancel lines of credits.
- Optimize your operations and other expenses
The best time to streamline operations is always now.
Examine your expenses carefully and cut anything not needed for the business.
Consider outsourcing some fixed cost functions (e.g., payroll, some HR, etc.) that may be offered cost effectively by vendors.
- Eliminate products or services that are not profitable
This has the added advantage of making your sales process less complicated.
Reinvest those cost savings into marketing.
- Consider acquiring hard assets
Although it is not usually advisable to load up on unnecessary debt, anything you acquire now (at a fixed rate) can be paid off with cheaper dollars.
- Extend leases and contracts
Doing this will lock you in at current prices.
While it is better to own than to rent, if you do rent, it would benefit you to see if there are options for getting an extension to your lease.
Your landlord will appreciate the business in the current environment believing it to be a fair price. Then in the following years, you won’t need to renegotiate at the future rate.
- If possible, raise your prices
Even if you commit to raising your prices 1–2% per year, when inflation spikes, you won’t be forced to hit your clients with a seemingly more significant increase all at once.
If your competition is forced to increase their pricing all at once, you will have the apparent advantage and get more of the market share at the expense of your competition.
- Do what you can to retain your best people
Good help truly is hard to find, and your competitors will be coming after your best people.
As your employees begin to feel the pinch of higher prices, compensation is important. Consider raising their pay.
There is nothing more costly to your business than turnover, and truth be told, you will likely end up paying more to replace a valued employee than you would be retaining them.
You can also consider the non-monetary factors that contribute to your employee satisfaction. Some initiatives may include improving your corporate culture, creating opportunities for training, and implementing a bonus plan.
- Keep your edge by refocusing your company mission and value proposition
Focus on your value statement so that it is appealing to your customers even when they know they will have to pay more tomorrow for what they got for less today.
Focusing on your mission will prevent you from chasing business that is not in your main wheelhouse. It will help curb your temptation to discount to preserve your top line and keep you from minimizing payment terms at the wrong time.
- Consider getting some help
Each of the above suggestions carries risk and requires some thought and planning. It can be beneficial to get outside guidance – especially from someone who has experience leading in economic conditions like we’re in currently.
Making investments in your company during inflationary times seems counterproductive.
Yet, those who invest in their businesses during these times are putting themselves ahead of the game and their competition when things begin to stabilize.
If you’d like some assistance implementing positive changes in your organization, contact us for a free consultation.