Inflation has been a significant challenge for small businesses for quite some time now, and that means many companies have had to contend with higher costs for items that are critical to their operations. Supplies, inventory, equipment, and important services may cost more than they did a year ago, and that can cut into profits and make it tough for businesses to flourish. Following are five ways your business can deal with high costs.
1. Utilize a business card or a business line of credit
One way to deal with higher costs is to utilize credit to give you access to funds without damaging your cash flow. Credit can come in the form of a business credit card or a business line of credit[disc:: .
"Some owners are making use of credit cards to purchase materials and pay for monthly expenses," says Steven Garibell at Entrepreneur.* "If used responsibly, they offer a 30-day float to extend your cash flow cycle. They also come with rewards programs that put cash in your pocket at the end of the year. As long as you make payments on time, credit cards are cheaper than drawing from that line of credit."
2. Look for ways to get paid more quickly
Find ways to ensure, or at least encourage, your customers to pay you more quickly. Provide as many payment options as possible to make it easy for customers to pay you online or via apps. Send regular payment reminders. Charge fees for late payments. Ask for upfront payments or deposits. Whatever you can do to keep cash flowing is going to help you better deal with high costs, and making sure you're getting paid is a great way to do that.
3. Find expenses to reduce or eliminate
Payroll and benefit costs may make up a large percentage of your expenses, but laying off employees can affect your efficiency, your customer service, and ultimately your reputation. Before resorting to layoffs, do your best to bring your expenses down. Look at alternative insurance policies. Evaluate office supply costs. Consider going paperless. Reduce business travel by taking advantage of virtual meetings and conferences. Look for ways technology can help you save money. Look at free or cheaper alternatives to subscriptions, software, web services, etc. The more you evaluate where your company is spending money, the more adjustments you'll be able to make, and these can add up, even if none of them is a major expense on its own.
4. Consider raising prices
Employment website Indeed notes that there are multiple ways to increase prices without losing customers.** You can be transparent and let customers know, so they are not blindsided when it's time to purchase. Another possibility is to not make any announcement. Some customers may decide to take their business elsewhere, but others may not even notice if the price increase isn't too large. Other strategies mentioned include increasing prices incrementally and encouraging loyalty by giving valued customers special offers."Lowering prices can sometimes generate higher revenue," Indeed says. "A microeconomic analysis can determine where demand and price intersect and interact, yielding the greatest amount of sales at an ideal market price."Raising prices will not be a great idea for every business, as it carries the risk of alienating some customers. Keep an eye on your competition, and ensure that you're not doing anything drastic that could negatively impact your sales.
5. Talk to your bank
Have a conversation with your business banker about your struggles to keep up with rising costs, and they might be able to help you come up with a solution that is ideal for your company. As mentioned above, a business credit card or line of credit might be the way to go, but there are other financing options, such as SBA loans or business term loans that are worth discussing.
Any one of the above tips can potentially help you cope with the rising costs of critical business needs. If you put them all together, you might find that you have a powerful strategy that not only helps you with your current cost issues, but better positions you to face any challenges that lie ahead.
* https://www.entrepreneur.com/money-finance/6-steps-for-your-small-business-to-avoid-a-financial-crisis/447413
** https://www.indeed.com/hire/c/info/raising-prices
