Consumers aren’t the only ones dealing with the pressure of rising costs. Small business owners are also feeling the pinch. According to a Biz2Credit study called “Small Business Inflation Study In 2022,” 88% of small business owners reported that inflation was impacting their business, with the majority of small businesses seeing costs increase by 20% or more.
Unfortunately, it doesn’t appear that rising costs will be dying down anytime soon, and inflation is still growing faster than wages, leaving many small business owners in a bind.. Though it’s a tough economic climate to navigate, there are some essential ways to protect your business from the impact of rising costs. Let’s see what the experts recommend.
Take Full Inventory of Your Business, Regularly
Whether you only recently embarked on starting a small business, or you’ve been in the trade for years, it’s important to regularly take full inventory of your business and determine if there are areas where you can “trim some fat,” as Nick DiNatale, founder of ShipPlug put it. Ask yourself, “Is everything I’m doing adding value to the growth of my business and preventing rising or unforeseen costs?”
Renegotiate With Your Vendors
If you have a good relationship with vendors, talk with them in an attempt to get some wiggle room on costs.
“Take a close look at where your company is spending money and whether there is an opportunity to renegotiate pricing with any of them,” DiNatale said. “Most companies will do anything to keep your business, so why not try and reduce costs if you can?”
Renegotiate Your Lease
When in renegotiating mode, don’t forget to talk to the company or person you are leasing your business or commercial space from. You could cut back costs here too, depending on your location.
“The way in which a small business owner can try to cut back on costs is through renegotiating corporate leases if the business is located in an area where there is an oversupply of available commercial space,” said Biz2Credit CEO Rohit Arora. “Areas like Manhattan are making a push to increase their occupancy rates as many companies have left, downsized or pivoted to an in-person/remote hybrid.”
Embrace Remote Work for All Your Employees
If possible, consider ditching your commercial lease altogether (in a responsible way). Doing this will allow you to save on various costs, including steep utility bills.
“Giving your staff the option to work from home can dramatically reduce electricity and heating bills for office-based businesses,” said Rick Smith, managing director at Forbes Burton. “If you can organize a particular day of the week that sees everybody at home and the office closed altogether, then all the better. In fact, there are countless businesses that now operate with no physical premises at all. It’s worth taking a look at your business to determine if it might be more economical to conduct your meetings online, and arrange physical meetups at a local shared workspace.”
Provide More Services and Less Goods
If at all possible, aim to provide more services and less goods. This will help your business stay strong amid inflation, which is driving up operational and production costs.
“Rising inflation significantly increases operational costs, from raw material expenses to wages,” said Yali Saar, co-founder and CEO of Tailor Brands. “In fact, September’s 0.5% increase in wholesale inflation rose in September is far from over. As a result, maintaining profitability while keeping prices competitive is a delicate balance that requires constant attention. My recommendation to small business owners is to ensure their businesses rely on as many variable costs as possible. Service providers tend to fare the best in economic crises as they don’t have wages to pay or rely heavily on stock they need to pre-purchase.”
Pay Close Attention to Your Invoices or Accounts Payables
Accounting tasks can be a real headache, but you need to pay close attention to your invoices and accounts payables. This will ensure that you aren’t paying too much for a service or investing in one that you no longer need or does not help your business flourish, DiNatale noted.
Maintain a Strong Company Culture
Fierce and empathetic leadership is critical to keeping your small business strong — but it also saves you money in the long run. Happy employees will be more loyal to you than unhappy ones.
“Employee retention prevents you from having to fire and rehire, which takes time and costs money,” DiNatale said. “A strong company culture also increases the likelihood that employees are spending their time wisely and productively.”
Adopt AI That Supports Your Employees
AI is rapidly becoming a go-to tool for consumers and businesses alike. Using AI technology as a small business owner in a way that helps — but does not replace — employees can be one way to reduce costs and improve or maintain employee retention.
“AI tools can play a crucial role in lightening the load on employees,” said Jenna Coleman, co-founder of Lynn. “For example, chatbots can handle routine and repetitive tasks, freeing up employees to focus on more strategic, creative or fulfilling aspects of their work. This not only reduces employee stress, but also enhances overall job satisfaction and reduces the risk of turnover.”
Foster a Strong Relationship With Your Bank
When looking for ways to trim expenses, don’t overlook your business’ banking relationship. There are actionable steps owners and their finance executives can take to reduce or eliminate fees and save money on banking and other financial services. Here are just a few examples, courtesy of Jim Plagge, president and CEO at Bank Iowa:
- “Work closely with a local community bank to structure deposit accounts and loans in a way that avoids account fees and minimizes borrowing costs. This could include things like consolidating or refinancing existing high-rate, short-term debt or finding an alternative to high-interest rate credit products.
- Be attentive to discounts that accompany timely payments.
- Ask your CPA about potential government subsidies and alternative tax strategies.”
More From GOBankingRates