How Business Owners Can Maintain Financial Health Amidst Inflation
Forbes
Featuring Arad Levertov, CEO, Sunbit
Inflation can be a significant challenge for businesses of all sizes and industries. As prices of goods and services rise, companies must navigate the potential impacts on their revenue and expenses. However, there are smart strategies that businesses can use to maintain their financial health and even take advantage of an inflationary period.
Below, 14 Forbes Finance Council members recommend some effective methods for staying afloat in the midst of inflation. Follow their practical tips to thrive, despite a challenging economy.
1. Invest In Improving The Brand
Businesses will need to explore higher pricing through better branding (i.e., premium). Higher margins can offset higher costs but it has to be thought out well so they don’t end up losing customers to low-cost competitors. Investing in improving the brand will pay off in this environment. New product development and innovation can also pay off in terms of distinguished offerings at premium pricing. Geographic diversification, recession-resistant investments and cost-cutting through offshoring will also help. – Anar Pitre, Lotus Capital Partners
2. Cut Operational Costs
Cutting operational costs is a standard response to macroeconomic pressure, but businesses should reconsider how they offer products and services. For example, subscription and other sustainable engagement models allow businesses to maintain profit margins by offsetting cost-of-goods increases while adding predictability to monthly revenue streams and increasing customer engagement. – Ksenia Yudina, UNest
3. Establish Willingness-To-Pay Pricing
If a business takes its pricing decisions seriously and focuses on establishing willingness-to-pay pricing (rather than “cost plus” or other simple bases), then an inflationary environment, where there are competitor price movements as well as changing pricing expectations by customer segments, can lead to some substantive profit and market-share opportunities for a business to take advantage of. – Allan Pedersen, Monetalis
4. Take Out Loans
One of the best ways to maintain financial health during an inflationary period is to take out bridge loans, SBA loans and lines of credit during this period. Stay the course, maintain daily business operations and you will be fine. The interest paid on business loans is tax-deductible in most cases. When the inflationary period is gone, one could refinance the loan in order to lower the rates. – Elijah McCoy, McCoy Brokerage Service, Inc.
5. Change Your Payment Structure
Consider moving to a salary and bonus model instead of salary increases. This approach can give employers more flexibility to control wage pressure and help their employees cope with inflation, without locking themselves into a commitment should inflation and wage pressure fall. Also, do an annual review of all subscription services and rolling costs to review if the value is worth the cost. – Sandra Cho, Pointwealth Capital Management
6. Embrace The Cloud
As the cost of capital rises in inflationary periods, you need to point to a near-term payback for net new investments. Organizations are retiring on-premise environments and scaling cloud operations to reduce capital expenditures to ensure the most bang for their buck. The cost benefits of a cloud infrastructure outweigh the capital investment for physical internal infrastructures. – Simon Edwards, ServiceMax
7. Use A Cost-Push Strategy
Businesses can maintain health by adjusting prices to reflect increased costs (i.e., a cost-push strategy). This is most effective for businesses with pricing power. Other strategies include reducing costs, long-term contracts with vendors, improving efficiency and diversifying product offerings. Consider competition, market conditions and consumer behavior before implementing any strategy. – Araya Solomon, Luxoft, a DXC Technology Company
8. Take Advantage Of Complex Trusts
It’s not how much you make, it’s how much you keep. Even more important as things become more expensive and your money reduces in value. This makes how much you can save on taxes even more important as it’s usually the second biggest cost of any company. Using complex trusts like the elite billionaires will help business owners improve the overall health of their businesses. – Khurram Chohan, Together CFO
9. Provide Solutions To Customers
Inflation affects everyone. It’s especially evident in service economies like the dental or auto repair industries, where prices might be going up, but customers still need to meet their everyday expenses. This drives demand for solutions like affordable credit products or point-of-sale lending that can help customers get what they need while keeping businesses healthy. – Arad Levertov, Sunbit, Inc
10. Focus On Fundraising Efforts
In the non-profit space, focusing fundraising efforts on more resilient donors like high, net-worth individuals is one smart strategy from a raising capital perspective. On the expense side, partnering with new and emerging businesses who are looking for clients and may be willing to work with you on price is a creative way to execute on core business at a discount while also supporting another one. – Damaris Herron-Watkins, A Better Chance Inc
11. Rely On Cash Flow Forecasting Tools
Business owners can use cash flow forecasting tools to maintain their finances during inflation. These tools use real-time accounting data to predict future cash flow, allowing owners to plan and make informed decisions on expenses, investments and more. This proactive approach helps ensure a steady cash flow, reducing the risk of financial strain and encouraging long-term growth and stability. – Nick Chandi, ForwardAI
12. Focus On Cost Containment
Businesses should leverage and focus on cost containment. They should reduce overheads, negotiate better deals with suppliers and implement more efficient processes. Additionally, businesses can look for ways to adjust their pricing strategies to maximize profits and explore alternative sources of revenue. By taking these steps, businesses can help protect their bottom line and remain competitive. – Greg Cucino, Bridgepoint Consulting
13. Reevaluate The Pricing Strategy
On the revenue side, a business should take advantage of high inflationary periods to reevaluate its pricing strategy, and if needed, roll out price increases. While on the cost side, it is a good time to become more efficient in procurement by exploring alternative vendors with lower price offerings. – Abhinav Swarup, Zeus Living
14. Open A Business Line Of Credit
It is paramount to ensure that you only use the financial resources you need and can afford. A great option is a business line of credit as you can use it flexibly to help battle increased costs while only paying interest on the funds that you withdraw. Lines of credit work great as a sort of rainy-day fund that can maintain stability and keep you afloat during an inflationary period. – Xan Myburgh, Backd Business Funding
