The Great Resignation and the hyper-competitive labor market of 2021 were the chief stressors for small business owners across the country last year. In 2022, according to the most recent report from the National Federation of Independent Business (NFIB), inflation is causing the most anxiety for America’s entrepreneurs.
Prices are rising, supply chains are still rocky and customers are closely guarding every dollar as their lives get more expensive. So, what can small business owners do to weather the highest rate of inflation in 40 years? If you’re an entrepreneur on the ropes, let the following tips be the basis of your survival plan.
The most obvious counterpunch to rising inflation is to simply pass the higher costs of procuring supplies and materials onto your customers. As consumers across America know, plenty of businesses have already taken that step.
According to the NFIB report, “the net percent of owners raising average selling prices increased four points to a net 72% (seasonally adjusted), the highest reading in the survey’s history.”
The following industries saw the most frequent price hikes:
- Wholesale: 84% higher, 0% lower
- Construction: 83% higher, 3% lower
- Agriculture: 78% higher, 2% lower
- Retail sales: 77% higher, 2% lower
The Philadelphia Inquirer suggests avoiding across-the-board price hikes wherever possible, and instead, raising prices only on the products that impact your margins the most and “where customers are most likely to be amenable.”
In times of high inflation, big brands are notorious for stealthily raising prices on the sly with a practice known as shrinkflation. That’s when you leave the price tag unchanged, but quietly remove a little pinch from every package.
Consumers are famously price-sensitive, but they’re not always perceptive to subtle changes in packaging and they don’t always read the fine print. Had they read the fine print, according to Quartz, those consumers would have noticed that these changes took place in 2021:
- Boxes of Wheat Thins Family Size Original lost 28 crackers when they went from 16 ounces to 14 ounces
- Bounty Triples lost three sheets per roll of paper towels when they went from 165 sheets to 147
- Crest 3D White Radiant Mint lost one brushing when a tube dropped from 4.1 ounces to 3.8 ounces
- Doritos slimmed down by five chips per bag when the standard size dropped from 9.75 ounces to 9.25 ounces
It’s not just for the PepsiCos and Procter & Gambles of the world — small businesses can cut costs under the watchful eyes of price-conscious consumers with shrinkflation, too.
Small business owners across the country are pouring capital into technology and automation to increase each employee’s value, reduce costs, improve service and streamline their operations to offset the effects of inflation, according to the Harvard Business Review (HBR).
Investments in tech and automation have proven to be useful during times of crisis, in general, not just when inflation is high. For example, HBR’s own research found that businesses that invested in AI and automation just before the pandemic weathered 2020 and 2021 better than those that did not.
According to the HBR and the Philadelphia Inquirer, common examples of wise tech investments include:
- Robotic process automation (RPA)
- Workflow and intelligent document processing
- Robotics for factories
- Self-service kiosks for stores and restaurants
- Radio-frequency-identification and barcoding systems for inventory control
According to American Express, one of the surest ways for small business owners to beat inflation is to fill their shelves and warehouses with anything with low holding costs before prices rise more — which they’re sure to do. Although prices are high now compared to this time last year, the latest CPI report showed the most acute inflation since 1982 was occurring right now.
At that rate — or even half of that rate, should things improve — today’s high prices will feel low by this time next year.
Debt is part of running a business, but when inflation is high, the boundaries between good debt and bad debt can become blurry.
The Inquirer recommends paying down variable, high-interest credit card debt right away, and if you can’t, at least transfer it to cards with lower rates. An even better alternative is to refinance high-interest debt into a fixed-interest rate loan with a longer term — even if you have to take out a second loan on your business property or your house.
Eligible businesses might benefit from a Section 7(a) fixed-rate Small Business Association (SBA) loan — you can borrow up to $5 million to refinance existing debt or to increase your business’s working capital.
For small business owners, inflation is now the primary concern, but the labor crisis that occupied so many of their minds last year is far from over — and the two issues are deeply connected.
According to Funding Circle, employee retention must be part of your inflation-survival strategy. If you start losing workers now, you’ll hemorrhage precious cash to advertising open positions, hiring new workers, training them, onboarding them, and getting them up to speed. All the while, your ability to meet customer demand will suffer.
The Great Resignation is by no means over, and your ability to survive today’s high-inflation environment depends largely on your ability to survey your employees, find out what they want in terms of perks, benefits and scheduling, keep them happy and keep them showing up.
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