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How to Manage Your Business During Inflation

As global and consumer prices increase, economists and entrepreneurs predict supply-chain hikes will continue through at least the rest of the year. As consumer prices increase, wages, the cost of raw materials, distribution costs, and more may also increase. This can be hurtful for businesses that may have poor financial health or were not prepared for the effects of inflation on their business. Fortunately, there are ways to manage and protect your business from inflation and remain profitable.  


Prioritizing Cash Flow During Inflation 

One of the most common reasons a business fails is due to lack of cash flow. Consistent cash flow is crucial to smoothly run a business and invest in new opportunities. Rising inflation can further add to the stress of maintaining a healthy cash flow. To improve cash flow during these times, you may want to start by reducing expenses. It would be beneficial to take a look at your monthly expenses and cut or reduce any expenses that are unnecessary. For any necessary expenses or contract you are in, you may be able to negotiate the price or find less expensive alternatives to preserve your cash flow. Additionally, encouraging your customers to pay faster will also help your cash flow. You can offer incentives for early payment, request an upfront deposit, or turn to an alternative financing company that will advance you a percentage of your customer’s invoices and handle the payment process for you.    


Controlling Demand  

During a rise of inflation, consumers will likely cut back on non-essential goods and services in attempt to save money. Not all businesses face an immediate fall during this period, but consumers may be hesitant to make larger purchases or opt for a cheaper alternative. Consequently, businesses may see a reduction in demand or a decrease in sales revenue. Keep this in mind when purchasing inventory to reduce waste and maintain efficiency.  


To manage your business during inflation, evaluate the demand to reduce waste of products.

Evaluate consumer demand to reduce or prevent waste.


Strategically Pricing Goods & Services 

It may be necessary to raise your prices to keep pace with inflation. However, if raised too much, this may repel consumers from purchasing your products. Instead, consider raising prices in small increments as inflation rises. Many consumers will expect a rise in prices, but slowly increasing them may keep them from looking for alternatives. Alternatively, if you have enough savings and feel comfortable enough to not raise prices, this could further help uphold the relationship with your customers. Consider the 4 C’s of pricing strategy: customers, costs, competitors, and cash. Ask yourself, how important is the pricing of your products to a customer? How has inflation affected your supply or labor costs? Has your competition increased prices? What is your current cash flow?  


Improving Collection Methods 

Another way to manage your business during inflation is to consider automating some tasks. There are many applications and services available for affordable prices that will help you automate any repetitive or small processes. You can simplify workflow with the use of technology which will allow for your employees to focus on different tasks. With warehouse automation, you can move inventory in, within, and out of warehouses with technology and little to no human assistance. Automating tasks can improve productivity and cut back on small expenses.  

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