4 Effective Ways Small Business Owners Are Fighting Inflation

Inflation continues to be a major concern for many small business owners across the United States. Much like during the pandemic, many are struggling to adapt to rising costs and pressures on profitability.

In Megaphone of Main Street: Inflation & the Economy, SCORE, a national organization of business mentors, surveyed 1,000 small business owners about their current concerns about the economy and inflation. Nearly a third (30.5%) of small business owners list inflation as a top concern and another 62.5% are “generally concerned” about inflation as they keep an eye on rising prices.

Business owners responding to the survey report struggling in multiple ways:

  • Profits are declining for over nearly two in three (62.7%)
  • Sales have declined for over half (58.6%)
  • Expenses have risen for a slightly higher percentage (59.5%)
  • Vendors and suppliers are charging the majority of small businesses more (65.7%)

Overall, the survey paints a picture of continuing challenges for many American entrepreneurs.

How are business owners responding to inflation?

The SCORE survey found that some are seeking more profitable clients, some are adjusting their product mix or improving technology, and most are raising prices. Just over half (54.8%) of business owners said they found it necessary to increase prices to match price increases in the market.

“Small business owners are known to be tenacious and find creative ways to adapt and thrive,” says SCORE’s Vice President of External Relations Betsy Dougert. “To boost profitability and remain viable, many have taken active measures to combat the difficulties they’re experiencing in the economy, such as seeking more profitable clients, adjusting their product mix or improving technology, but most are raising prices.”

Here, four small business owners shared the strategies they are using now to mitigate the effects of inflation:

1. Purchasing supplies far in advance; using lines of credit

Aaron Mulherin, Owner
AM Glass Repair

“Material prices are changing so quickly that we are having pricing quoted on every job. In the past, we always would use formulas and spreadsheets to get us close, but at this point, even the formulas are a guess without having an exact quote on our material.

“We also have to purchase materials at least six months in advance in order to lock in prices. If we don’t do this, we risk taking significant losses on material prices between the quoted date and purchase date. Obviously this creates a cash flow problem, so we have been negotiating vendor credit terms on large jobs, billing for materials as soon as possible, and using lines of credit to cover any gaps.”

2. Negotiating long-term contracts and prepaying for services

Grant Cardone, CEO and Founder
Cardone Enterprises

“In our real estate business, Cardone Capital, we are attempting to secure as many well-located real estate properties as possible, knowing inflation will benefit income-producing real assets’ valuations and rental income. For instance, where we were satisfied with leasing office space in the last 24 months, we bought our office spaces.

“We are also currently attempting to secure future inventory needs and service commitments from vendors we depend on by negotiating longer term contracts at current rates. We are also willing to prepay for services that we know are long term and constant. This accomplishes locking in at today’s prices and alleviating uncertainty. ”More articles from AllBusiness.com:

3. Relentlessly pursuing efficiency and bringing software in-house

Glen Bhimani, CEO
BPS Security

“Our number one strategy is to look where we are currently ineffective or where we can improve our process to decrease the amount of time spent on running the business which will then translate into higher profit margins to help offset inflation.

“Our second strategy is to create our own in-house software rather than renting from another software company. For example, we created our own CRM for a little over $28,000 and our maintenance cost is only $75 a month to maintain compared to renting from another company at a cost of $8,750 a year.”

4. Raising prices while striving to maintain customer satisfaction

Elliott Smith, CEO
The Ohana Addiction Treatment Center

“The main and obvious strategy is to pass the cost down to our customers by raising prices. While this isn’t ideal, it is more necessary than ever as vendors and costs of goods sold increase for us in our pipeline. The key is to balance this with inflationary forecasting, such as how long will inflation remain high and how long we can compromise on our margins without affecting customer acquisition due to higher pricing. It is a balance of remaining competitive with pricing, while sustaining a profitable business.

“The other strategy is to cut costs without affecting the quality of the service we deliver, such as reducing the services we offer without affecting the overall experience of our customer. Running a business in an inflationary market can be like driving a long train down a track. Slowing down too quickly will cause the train cars to pile on one another, while speeding up too quickly will cause the train to lose cabins and detach. A smooth balance of using the aforementioned strategies will allow the train to stay on the track.”

Free help for small business owners struggling with inflation

Like these business owners, you may find yourself struggling to create a strategy that will help your business remain competitive as costs rise without losing significant market share. Consider doing what Mulherin and thousands of other entrepreneurs are doing: get free mentoring through SCORE.

“We have a SCORE mentor that is extremely helpful to talk with and bounce ideas off of,” he reports. “Together we make plans and adapt as things keep changing.”

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