The Consumer Price Index (CPI), used by the U.S. Bureau of Labor Statistics to track inflation, reached a four-decade high of 9.1% this past June — the highest pace we’ve seen since 1981. While inflation has eased to 7.7.% as we enter the holiday season, over eight in ten American consumers are still wary. Small businesses must find ways to make do with the rising costs of materials, inventory, and overhead, and dampened consumer spending.
What else is being done? Earlier this year, the U.S. government passed the Inflation Reduction Act (IRA) to help combat the effects of inflation on the economy. The IRA may introduce billions of dollars through tax, healthcare, and climate initiatives, but none of these initiatives are likely to benefit small businesses battling inflation.
Small business owners should consider improving cash flow as their first line of defense. This article will cover five strategies to do just that.
What Can Small Business Owners Do?
1. Reduce Your Business’s Expenses Where Possible
Take some time to review your business’s operating costs and overhead expenses. Look for cost-cutting opportunities that do not negatively impact customer satisfaction, productivity, or employee well-being. Here are some ideas:
- Renegotiate terms with suppliers and take advantage of any discounts available. Suppliers often offer discounts for bulk purchases, early payments, down payments, and preorders. If your suppliers do not, or you are uncertain, be sure to ask.
- Cancel unnecessary subscriptions. Commercial subscription fees can be expensive and are frequently overlooked by business owners. If your business is paying for sales, marketing, or project management tools that are not being used, canceling those subscriptions may save your business several thousand dollars each month.
- Relocate or downsize your office. Small businesses that already have a remote or hybrid work model in place can reduce overhead by relocating to a more affordable location or downsizing and subletting the extra space.
2. Diversify Your Business’s Revenue Streams
Consider diversifying your business’s revenue streams. Revenue generators that are low-cost and low-maintenance may help offset the impact of inflation on other parts of your business.
3. Raise Prices on Products or Services Your Business Offers
If your business has not already adjusted its pricing structure, now may be an ideal time. Unpleasant as this may seem, you’re not alone. According to the latest Small Business Index report from the U.S. Chamber of Commerce, 70% of small businesses claim they are charging more in response to inflation.
Raising prices should not be your business’s first response though. Careful consideration of costs, value, price sensitivity, competitors, timing, communication, and other factors is crucial.
4. Invest in Marketing for Your Business
Relying on a defensive strategy alone is neither a strong approach to combat inflation nor a guarantee your business will survive. Marketing is your business’s offensive protection. For this strategy to be effective, however, your business should prioritize campaign efforts that yield the most bang for its buck.
5. Apply for Financing with 1st Capital Financial
Financing gives your business the wherewithal to invest in growth opportunities, improve your bottom line, and stay competitive in an inflationary environment. Here are some financing options your business may want to consider:
- Apply for an SBA 7(a) Loan or SBA 504 Loan. SBA loans are great for debt consolidation, equipment or inventory purchases, working capital for marketing, hiring employees, business expansions, and much more.
- Consider Invoice Factoring. Invoice factoring is an excellent financing option for preventing cash flow gaps.
- Look into Equipment Financing. Equipment financing can be applied to a wide variety of new or used office equipment, commercial vehicles, construction equipment, heavy machinery, or related purchases.
Inflation is here, and the pressures that come with it are likely to challenge small business owners for the foreseeable future. But inflation needn’t stifle small businesses’ development. There are practical strategies small business owners can apply to weather the storm, and offensive measures they can take to ensure their businesses thrive. Small business owners that are interested in applying for financing, or learning more about their options, are encouraged to reach out to 1st Capital Financial. We have over 25 years of experience, more than 190 lenders in our partner network, and a track record of success with thousands of small businesses across various industries.