Four Steps to Help Your Business Survive (And Thrive) During High Inflation
James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
If you’re a business owner you know that the effects of high inflation and increasing interest rates aren’t only being felt by consumers. They’re very likely taking a big chunk out of your profit margin, too.
If that’s the case, there are generally only two ways to make it up – raise prices or cut costs (or both). Both can be effective tactics, but only if they’re carried out strategically, with consideration of not just the effects on your business and livelihood today but in the future as well.
You might be tempted to borrow in order to bridge the gap, but right now that may be a bad strategy. With interest rates at the highest they’ve been in quite some time, even debt costs much more than it did before, and you could end up digging your business into a deeper financial hole.
Instead, follow these four steps to get your business operating at maximum efficiency. They’ll help you to not only weather the temporary (though tough) storm of high inflation, when carried out as part of a strategic, long-term plan they could even help you to grow your business in the long run.
Do a Deep-Dive Analysis of Your Spending
Having a good grasp on your company’s spending is always important, but especially when profit margins get tighter. Analyze your spending by cost category and business unit to see where there may be opportunities to tighten up operations or adjust purchasing to cut costs without compromising quality. The key here is to view the process as not just “cutting costs” but finding new cost efficiencies. Which brings us to step number two.
Find New Efficiencies
Can you renegotiate prices with some vendors? Are there items you can purchase in bulk? Can you switch to less costly materials without affecting product quality? (Packaging is a good example.) Are there opportunities to implement technology to automate tasks and improve workflow? Use the learnings from your budget analysis to determine which tactics are likely to make the biggest impact on your bottom line, and then investigate the possibilities.
Analyze Your Pricing And Prioritize High-Return Products
Review your pricing and consider if it makes sense to raise some of them based on the cost of goods and competitor pricing. Particularly if your business relies on supplies that have been hard-hit by inflation, your customers will understand (and your competitors are likely having to do the same. Just be careful not to overdo it – you want to still remain competitive. You should also do an analysis of the profitability of each of your products or services. Are there any that are expensive to produce and yet have a small return on investment? Consider if those should be eliminated.
Prioritize Strategic Costs, Too
If you’re thinking about laying off employees, do so cautiously and with serious consideration. While it may help in the short-term, when the economy normalizes and business picks back up, you may have difficulty filling those positions again in order to keep up with the competition – and that could cost you much more in the long run.
The same goes for marketing and advertising dollars. Although it’s an easy cut to make now, it could cost you much more in the long run. And in fact, staying steady with your advertising strategy when many other businesses may be pulling back presents a unique opportunity to grab more attention, and market share.
At Weiss, Hale and Zahansky Strategic Wealth Advisors, we help to guide business owners through volatile times like these through our strategic Plan Well, Invest Well, Live Well process. Our goal is to help make our clients’ businesses thrive while also leveraging that success to also make their personal financial and life goals a reality. See how we can partner to benefit you and your business and then contact us to set up a time that’s convenient for you to connect in person, by phone or by video conference.
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Authored by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.