Inflation and small businesses


How does inflation affect small businesses?

We’re hearing a lot about inflation at the moment but what does that actually mean? Basically it means that everything costs more across our economy. We expect a degree of inflation over time and it’s normal for businesses to increase their prices a little bit over time.

We’re hearing a lot about inflation at the moment because it’s happening faster than what we’re used to. There are big things to think about here for small businesses.

People are experiencing a rise in cost everywhere so our capacity to purchase is reduced and people spend more cautiously. For many small businesses, particularly in industries that are luxury, this will mean a drop in sales. On top of that, many of the costs involved in bringing our goods and services to our customers are increasing too.

What can you do about it?

Reduce your expenses

Now is a great time to look at your expenses and see what can be reduced. You may be paying for things that you no longer make full use of, or could go without. Also, you may be paying more than you need for essential services or supplies. Can you shop around on your supply contracts?

Be careful about reducing your expenses by reducing your marketing though. You don’t want to reduce your sales! You could look at what forms of marketing are most effective for you and be more strategic.

Look after your cash flow

They say cash is king because we need cash to meet our obligations. Keep track of what you have coming in and when, and what you have going out and when. That way you’ll know ahead of time if there’s a period when you might expect to have cash shortages and can adopt strategies ahead of time to avoid or bridge it.

Look after your employees

We’re all feeling the pinch so employers and employees need to be in this together. Employees might look for pay rises as their expenses increase. Keep in touch with your industry so you know what’s happening. If you can’t increase your wages, are there other benefits you can provide your employees to help them weather the storm too?

Consider new opportunities

Some of your products or services may do better than others through this period. It’s worth knowing your profit margins on each so that you can focus on what’s working. Also, can you diversify? Consider what associated products or services you might be able to offer that could be attractive to your current customers who are spending less or even target new markets.

Raise your prices (carefully)

Most businesses will need to raise their prices, however you don’t want to outprice your customers. A good understanding of the profit margins of your individual product or service lines is important. You might find products or services that are costing you money. Keep an eye on your industry and local competition too so you don’t set your prices either too low or too high.


I’m going to write more about this in future articles, particularly cashflow planning and profit margins. Is there anything you’d like more detail on? I’d love to hear from you.

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