What can you do about inflation?

10 things you can do as an entrepreneur against inflation

The prices are rising. Interest rates are literally skyrocketing. We have real inflation. The faster prices rise, the more difficult it becomes for business leaders to run their business as usual. This article provides you with approaches on what you can do as an entrepreneur in the event of inflation.

There are four categories of how a company can respond to inflation. In principle, prices can be increased, sales volumes increased, costs reduced and efficiency increased. Linked to this is the need to speed up the investment and financing cycle.

Let’s go through 10 important tools and see how you can implement them in your company.

Raise prices

The most effective way to compensate for inflation-related cost increases is to adjust your own sales prices. This is of course easier said than done. There is always the fear that customers will leave your company. Nevertheless, here are 3 ideas on how you might be able to implement it:

  1. If you want to raise prices for all of your customers, talk to a few of them first. Tell them what you’re up to and find out how they would react. Maybe they understand, maybe not… There’s only one way to find out.
  2. Another way is to implement a price increase only for new customers. This way, you won’t alienate your existing customers. I’ve walked this path myself before and haven’t had a single negative experience. However, we are talking about a customer base of around 80 customers here, which is a very small example.
  3. Then, you could still adjust your contracts. Of course, this depends heavily on the example, whether it is so easy to implement. However, contracts with built-in increases for inflation can mean future price increases with less discussion.

Increase sales volume

You should only use this tool sensibly in your company, basically if the additional business also brings more profit. For service providers, there is the natural limitation of time with the customer, which is not infinite. For retailers, the additional advertising spend and (now expensive) inventory may limit options. The producers have the disadvantage that they also have to sell the goods on the market.

In any case, you may already see here why they say that you have to invest. Whether raw materials, inventory or marketing expenses only plays a secondary role. It is important that the money in your account is not eaten up by inflation, but is used sensibly. (Although I believe that a larger financial cushion is also justified.)

Find a new business

This point hits a similar note as increasing sales volume. If you cannot increase your sales volume as planned or profitably, a sensible solution is to set up a new business segment. Again, the idea is that you increase your earnings to escape inflation.

If you are interested in this point and would like to deepen it, take a look at our article “How can I expand my solo business?”. Here we show you some key points on the way to expansion that you should definitely think about.

Buy customers or competitors

Behind this point lurks the same idea, an increase in revenue. Many people probably shy away from it because it seems more risky. This need not be. I have already taken this path with the purchase of a small language school in 2015. It is daunting, however also rewarding.

Of course, that’s not a way of reacting to inflation tomorrow (!). Depending on which scenario you assume, six months to a year is quite realistic.

Personally, I found 4 company exchanges/platforms where I was able to find interesting offers.

https://www.bizbuysell.com

https://www.bizquest.com

https://us.businessesforsale.com

https://www.rightbiz.co.uk/ (UK market)

In our area, there is also the possibility to buy existing customers from other providers without having to take over an entire company. However, this option is industry dependent. A hairdresser will have no chance here.

Get a loan

One way to combat inflation is to raise interest rates. You can therefore assume that interest rates will rise under normal conditions. This is accompanied by a higher interest rate for all new loans taken out.

So, if you recognize the need for loans in the next two to three years, then it can make sense to get them a bit quicker. Three aspects definitely work for you.

  1. The interest can be contractually fixed and then does not increase.
  2. Your credit rating is better before further increases in costs, and it is therefore more likely that you will get a loan now.
  3. The money can be used for a period of adjustment to the high cost and the implementation of some other measures.

Increase equity

In times of inflation, investors look for real assets. This includes shares in companies. Think about whether it makes sense to increase your equity base. The websites just mentioned can also be used for this.

The goal here is again to have enough cash to survive one to three years of above-average cost increases, and to take some of the other measures mentioned.

There are always two sides to raising equity, of course. Here is a brief overview

AdvantagesDisadvantages
fresh moneyshare of voting rights for others
available long-termshare of profits for others
increases creditworthiness at bankscomplex process for termination
Pros and Cons of equity

Lower the costs

One of the easiest ways for a company to respond to inflation is to cut costs. Eliminate the “luxury” if you must.

I would like to make a basic reflection on this. Many people (in the private sector) are looking for new providers of electricity and mobile phones in order to save costs. Insurances may also be checked. The problem with this is that these items usually only play a very small role in the overall cost structure.

For companies, the really effective levers are usually salaries, rents and lease installments. A saving in bonus payments for the managing director or a temporary salary cut of $100 to $200 is probably much more effective in many smaller companies. These kinds of savings are usually greater than changing telephone providers.

Consider downsizing the business

One point that is closely related to saving costs is considering whether you should downsize your business. I have seen it in other examples and was forced to go through it myself. Most of the time, companies have one or two services that aren’t as profitable as one would hope.

If it’s not exactly a new expansion project, but falls more into the “failed attempt” category, cancelling that would be my first order of business. In a phase of inflation, you want to preserve your margins. I am specifically referring to the cases where it is clear that if these segments are exited, the result will be preserved or improved margins.

I want to use this point as well to refer to our post on strategy development. It can help you get a clear picture of what your business needs to do. In it, we have developed step-by-step instructions for drafting an initial strategy. In my experience, this makes the decision easier (but still not easy! 😉) to cancel certain services.

Work more efficiently

This section may seem intuitively weird to you. How can more efficient work be a good response to inflation?

Well, the faster you work, the sooner you’ll be done and still able to work on expanding your business. If we take a one-person company as an example, then personnel costs are probably the largest cost item. If you fulfill your contracts in 90% or 80% of the time, then you can continue to accept orders with a similar cost situation (= increase in sales) or “go home” (= lower costs for energy, telecommunication, heat, office supplies). In addition, you can usually only achieve this if you change something in your work, for example drive less to the customer and get more out of an appointment (= reduction in travel costs).

Check state funding

This last section is rarely applicable. Many governments around the world have special grants and programs for small businesses. There are contributions to salary or further training costs, for example.

Of course, other things are also encouraged from time to time. These are very specific examples, but they can definitely be worthwhile.

However, this also comes with conditions that you have to check first. So, here we don’t have a quick way to keep costs down or generate additional income here either.

In the end, I hope that you were able to take something away from this post. In line with the topic of how you can react to inflation, I repeatedly said that it’s important to increase revenue. I would like to draw your attention to our article “What do you do when you have no customers?”. In it, you will find a few tips on how to break even and get into the profit zone.

Leave a Reply

Your email address will not be published. Required fields are marked *