As the US economy looks to put the Covid-19 pandemic behind it, another serious threat has been emerging inflation. In 2021, inflation totaled 6.7%, the highest level since the early 80s. Prices for some key items are up significantly more than the overall inflation rate. For example, energy prices were up 33.3% last year, the biggest rise since 2005; and the price of new vehicles rose 11.1%, the largest year-over-year increase ever recorded.
Another related issue that is hitting businesses and consumers especially hard is the supply chain crisis. Grocers, retailers, restaurants, and other businesses that supply products directly to consumers are having difficulty keeping certain items in stock. This has created a lot of angst among business owners and consumers alike, and many businesses are struggling to stay afloat amidst the uncertainty of inflation and supply chain issues.
There is no doubt that this is a challenging time to be a business owner, but there are some steps you can take to help mitigate the effects of the current economic environment:
Table of Contents
- Maximize Efficiencies
- Streamline Your Workforce
- Cut Unnecessary Costs
- Look at Creative Solutions
- Thinking of Selling Soon? Inflation Mitigation Strategies Will Enhance the Value of Your Business
Maximize Efficiencies
When you are looking to improve your bottom line, one of the first places to examine is the efficiency of your operation. This has to do with optimizing your processes, workflow, cooperation, and collaboration, and acquiring the tools needed to help achieve maximum efficiency.
If you have not done so lately, have a conversation with key employees and look for ways that you can make your business operate more smoothly and efficiently. This might require changing some of the processes and/or implementing some new ones, and you may also need to make some technological upgrades to help optimize your processes and workflow.
Streamline Your Workforce
Closely related to the first step, it is good to look at how tasks are distributed to employees and whether anything needs to be changed in this area. When you talk about streamlining your workforce, many owners think this automatically means letting some of their employees go, but this is not necessarily the case. It could be just a matter of reassigning various tasks to help the business become more productive. That said, there might be some tasks that are unnecessary and could either be eliminated or automated, and of course this will always depend on the specific needs of your business.
Cut Unnecessary Costs
During an inflationary period like the one we are in now, it is essential to cut as much waste out of your budget as possible. Look at what you are spending your money on to see if there are some ongoing purchases that no longer make sense. Chances are, there is some fat that you can cut that will help your bottom line.
One area you should look very closely at is your advertising and marketing budget. Which marketing and advertising strategies are producing a strong ROI and which ones are not? Are you even able to track your ROI? If you are not tracking which strategies are bringing in customers and clients, now is the time to start doing that. And once you have this information, you will have a much better idea of how you should spend your marketing and advertising dollars.
Look at Creative Solutions
In addition to maximizing your efficiencies, streamlining your workforce, and eliminating unnecessary expenditures, there might be some “out-of-the-box” solutions to help you further enhance your bottom line. For example, maybe you are renting a large commercial office but most of your employees have been able to work effectively from home since the pandemic started. Does it make sense to bring them back into the office and continue paying rent for that much space? If your lease is coming up for renewal soon, this is a question to consider.
Another example is if your business receives a large percentage of its revenue from credit card purchases. If this is the case, you are most likely paying somewhere between 2% and 3% to the banks on average in processing fees. There are a couple of different ways for you to pass those costs along to your customers, they are called cash discounting and surcharging. Certain procedures must be followed to implement these programs, however, and surcharging is not legal in all 50 states. Check with your credit card processing company to find out what options are available to you with your business.
Thinking of Selling Soon? Inflation Mitigation Strategies Will Enhance the Value of Your Business
Taking steps to help weather an inflationary economy will not only help your business survive and thrive during difficult times, but they will also give you a head start on your exit plan. Most owners reach the point when they are ready to sell or pass the business on to the next generation; and having a well-optimized operation will set your business up for future success.
If you are considering selling sometime in the next couple of years, implement the appropriate inflation mitigation strategies for your business, then get in touch with a reputable business broker in your area. CPA and accounting practice brokers help owners to prepare for a sale, and they work closely with owners throughout each phase of the sales process to help ensure a smooth and successful transaction.
