Forbes defines inflation as a rise in prices and a decline in your currency’s purchasing power.
Therefore if you feel your dollar is not returning the same results as before, you are correct! The effect of inflation on small to medium-sized businesses means that businesses will sell less, resulting in a decrease in cash flow and lower profits.
Decreased cash flow and lower profits mean reduced ability to grow or invest in the business.
So, as a small business owner, how do you survive inflation? In this episode, I will provide you with a few key strategies that will position you to not only survive but thrive during inflation.
Review overhead costs such as marketing, subscriptions, and other general admin expenses and identify if these costs are really needed to operate your business.
Complete this step by pulling your profit and loss statement by % of income.
This report will display how much of your income is going to cover each expense line item.
Outside of the salary expense, most of your expenses should be lower than 10%. The first costs to examine are those above 10%.
Once you identify those, determine their ROI and identify if your business can thrive without them. If so, reduce or eliminate those expenses. As a result, you will keep more money in your business to begin to build a cash reserve.
Your gross profit margin shows the percentage of revenue you keep for each sale after all costs are deducted. It indicates how successful your company generates revenue while keeping its cost of goods or services low.
The formula is (Net Sales – COGS/Net Sales).
A good metric for gross profit margin is 60% or higher. You are operating on dangerous grounds if your gross profit margin is lower than 60%.
To improve your gross profit margin, you need to increase your prices, sell more and decrease your direct cost.
As I mentioned previously, inflation is causing many employees to desire and need more income. If you noticed a decrease in attentiveness and morale amongst your team, it could be the stressors of a higher living expense.
As a business owner, you can help your team and help yourself by finding out what perks, benefits, incentives, and schedules they desire.
Losing staff could mean your inability to meet customers’ demands. Therefore your goal is to keep your team happy and showing up, and as a result, your customers will also be happy.
In today’s time, technology can be a game-changer for your cash flow and bottom line! Implementing automation and technology will help you improve services, reduce delivery time, streamline operations and reduce costs.
I recommend examining every moving part of your business and identifying where you can implement technology and automation.
The best method to counterpunch inflation is to pass the higher costs you are experiencing to your customers.
When you raise your prices, instead of selling several service offerings or packages, you may only need to sell a few to generate a profit and maintain positive cash flow.
As a business owner, you must be able to adapt to the ever-changing environment. A solid financial plan is critical to surviving and thriving during inflation and other business changes.
If you are in need of a plan, download our FREE Say Yes To Profits Plan today! This plan will help you gain financial clarity and control and position you to wise business growth decisions so that you say yes to profits.