Inflation Survival Strategies

With inflation in Australia still running at a high 7.8% in 2023, small businesses may start to feel the pinch if they haven’t already.

High inflationary times affect small business in several ways, including:

  1. Increase in the costs of the business
  2. Increase in the wages of the business
  3. Supply chain issues
  4. Potential drop in customers as funds tighten.

However, high inflation isn’t always a bad thing for small businesses.

During easier times, we often see small businesses become complacent because profit and cash are easier to come by. Nevertheless if the right steps are taken during times of high inflation, the business can be set up correctly to prosper when inflation drops back to normal.

Here is a list of five strategies you can use to not only ensure that you survive times of high inflation but also set your business up for greater success in the future.

Constantly Review Pricing

With the costs associated with operating your business increasing as a result of inflation, unless you review and potentially increase your prices, those increased costs will come directly out of your back pocket.

Obviously, you need to make sure that you aren’t pricing yourself out of the market, but we see every day that small business owners are reluctant to increase prices when, in fact, they could do so with no loss in customers.

In high inflationary times, you need to ensure that you are reviewing your prices regularly to ensure that you maintain margins and profitability.

Review Business Expenses

It’s easy, in good times, to lose focus on the expenses being incurred in your business, but in times of high inflation, it is extremely important to critically review the expenses of the business to ensure that only essential costs are being incurred.

A good question to ask is. ‘What does incurring this cost contribute to the profit/culture/brand/growth of my business?’

If the answer is “nothing” there’s every chance that you should reconsider incurring that cost.

Improve the Business’ Efficiency

One of the costs which increases during high inflationary times is staff wages which is often one of the highest costs associated with operating the business.

It is important to ensure that the business is operating at a high level of efficiency to ensure that highest level of output from existing staff levels.

It is also important to ensure that administration work is completed by the administration team, which will allow other staff to allocate more time to productive work. 

This often means that the business requires less high paying productive staff as they are spending less time on admin tasks.

Keep On Top of Cashflow

When margins and profit tighten due to cost increases, it is extremely important to ensure that you keep on top of the business’ cashflow cycle.

We recommend the following to ensure positive cashflow in your business:

  • Get up front deposits or payment for work if possible
  • Ensure that you invoice regularly
  • Constantly chase late payers to reduce debtor levels.

Spend Time Budgeting and Planning Your Business

There is no more important time to plan and budget your business than when profits get tight.

Seek help from your accountant to implement proper budgets for your business (i.e., P&L, Balance Sheet, and Cashflow Budgets) and run some “What if” scenarios so that you can see the potential impact of important business decisions such as price increases.

Then work with your accountant regularly to monitor actual business performance to budget and adjust quickly if needed.

Summary

Unlike in easy times, it is extremely important that you proactively operate and manage all aspects of your business during high inflationary times.

Doing so will not only make sure that your business survives but will also set it up to be very successful when inflation settles back down.

Craig.