The Challenges of Inflation and How Small Businesses Can Manage It

As we all know, there are very few products and services that don’t have a price increase over time. So, inflation – which is defined as the rate of increase in prices over a given period of time - is something that is always happening. The challenge is that without any inflation, the economy can weaken, but when inflation is too high, it becomes a problem to consumers and businesses alike. With the current inflation rate (as of May 2022) at 8.6%, we are witnessing the highest inflation rate in four decades.

How is inflation impacting small businesses?

The pandemic, and the current unpredictability of the world stage, has not been kind to small businesses. Higher costs, rising prices, cutting overhead, and tighter profit margins are a few of the biggest challenges associated with high inflation rates. Higher costs of goods have forced many SMBs to raise their own prices, and yet they are still challenged with smaller profit margins. Simultaneously, these businesses are trying to figure out ways they can cut overhead without sacrificing the quality of their products or services.

How can small businesses manage this current period of high inflation?

We want to remind everyone that this won’t last forever. It is important to recognize that this high inflation phase will level off and we will return to a more “normal” level of inflation.

However, as we are currently in the midst of a high inflationary period, small businesses need to make a choice: stay small or focus on growth.

For those opting to stay small, the recommendation is to:

• Keep expenses low.
• Reduce non-essential expenditures.
• Lower production costs where possible (and applicable).

In addition, these companies need to find ways to make their money work harder.

• One option is to find investments that are either keeping up with or outpacing inflation.
• Another option is to use their current customer-base to increase revenue and profits, as opposed to spending the additional dollars on new business acquisition efforts.

If a business makes the decision to enter a growth phase, they should follow these tips:

• Augment marketing expenses to increase both brand awareness and sales.
• Revisit their pricing strategy to ensure that they are not leaving any money on the table.
• Reinvest their earnings directly back into their business.

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