Everyone is affected by inflation, but small business owners are always the ones to feel the economic discomfort the most. Consumers may be more hesitant to buy products and your operational costs can become higher. Certainly, the difficulties won’t last forever, but getting past the initial hurdles can be tough if you aren’t prepared.
It’s vital to adopt strategies that boost your company’s resilience in the face of economic uncertainty. With a little forethought, planning, and agility, your company can adjust effectively to inflation-related shifts and emerge successfully on the other side.
Adopting Diversification
One of the key ways you can bolster business resilience in uncertain economic conditions is by embracing diversification in a range of areas. It’s important to assess your current offerings and working practices to establish where you can be more flexible and expand your potential reach. In essence, diversity promotes greater agility that enables you to meet the needs of more customers, adjust to difficult circumstances, and ultimately weather the challenges related to inflation.
Some areas for diversification you can consider include:
Products and Services
One of your first considerations for diversification should be the products and services you offer consumers. Customers’ needs and priorities can shift during a recession and you want to make sure that you can still meet these and even reach more consumers. Diversifying your products and services also means you’re less reliant on a limited revenue stream. Take the time to perform market research to gain a solid idea of potential areas of expansion that are both in keeping with your brand and in line with customers’ developing interests. This enables you to make relevant shifts before inflation becomes too disruptive.
Working practices
If you’re only operating from brick-and-mortar premises, your business may be more susceptible to hikes in commercial rentals or employees moving out of cities to cope with rising costs of living. It can be wise to consider remote and hybrid operations in addition to your in-person practices. This enables you to switch to distant working during periods of downturn. Not to mention that remote operations enable you to utilize talented workers wherever they happen to live, thereby mitigating potential disruption. In addition, offering more flexible working conditions to workers may result in them accepting lower wage rises in the short term.
Adjusting Pricing Structures
Strategy should be involved in all of your changes as your business navigates economic uncertainty. This is especially important as you evaluate your finances and build financial goals. Alongside creating an emergency fund and developing a crisis management plan, you should also turn your attention toward your pricing. On one hand, you can reduce the prices of overstocked inventory to minimize the costs associated with managing and storing it. However, the rising costs of materials, logistics, and other overheads mean you may need to raise prices in some areas. This requires mindful adjustment of your pricing structures.
Value communication
Some rises in pricing are unavoidable. Assess your prices while still considering the consumer. Simply hiking to maintain profit levels isn’t always going to be a good reflection of what you provide and may well alienate your consumer base. Ensure you pinpoint the advantages that justify the price adjustments, other than the economic circumstances. You must then utilize your marketing channels to communicate not just the necessity of these rises but also to lean into how this still provides great value to customers.
Bundled and tiered pricing
Another potential option for handling pricing adjustments is to adopt bundled and tiered pricing. Aim to produce a range of price options for your services that both enable you to raise income to necessary levels and also provide your consumers with options that suit their stretched budgets. In particular, bundled options can be good for both your business and the consumer. On one hand, your customers gain from greater value with multiple products. On the other hand, your company can get higher per-transaction price points that may help you better navigate inflation.
Maintaining Solid Risk Management
Among the reasons to bolster your business’ resilience, inflation can pose and influence significant risks. Navigating economic changes effectively requires having a solid awareness and response to these potential issues. This involves incorporating inflation-related considerations as part of your risk management strategy.
This can include:
Financial stress testing
Financial stress testing can give you a healthy understanding of your company’s ability to withstand difficulties. Simulate your business’ financial performance under a range of inflation scenarios. It can be wise to collaborate with data analytics professionals here, as the accuracy of simulations will be dependent on historical financial data alongside wider economic information. These types of tests will point toward potential areas of vulnerability, so you can make adjustments that boost your resilience.
Mitigating supply chain risks
Some of the issues related to inflation don’t come from inside your business or from consumers. Rather, the supply chain can also be impacted by inflation. If raw material or operational costs fluctuate, supply chain partners that already have tight margins may unexpectedly cease trading. Unless you’re prepared, this can create disruption to your business. It’s important to regularly assess your supply chain partners’ vulnerability to market fluctuations and make decisions accordingly.
Industry-specific Changes
In addition to the aforementioned strategies, you’ll want to do some research on changes that promote resilience within your own industry. For example, the food industry is one of the most volatile industries in the economy. It’s highly competitive, and consumers are most likely to reduce how much they eat out during times of inflation.
Building a restaurant or a kitchen during inflation will require you to jump on board with actions that may save your business in the long term. Actions like integrating sustainability, and integrating food technology into your processes, and integrating yourself into the community will help make your business stay afloat during difficult times.
There are plenty of examples just like this, so do your research beforehand and apply it within your business as necessary.
Conclusion
Inflation may be beyond your company’s control, but you can certainly prepare your company to be resilient against the negative effects. In addition, it’s wise to consider that there is strength in numbers. Maintain good relationships with other small business owners in your industry or community. This can ensure a mutually advantageous source of information, advice, and support through tough times.