Inflation has become a household name in our world today. With the prices of things rising and the general well-being of people being jeopardized. It has never been more important to talk about the way out for businesses.
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A lot of small businesses and even the so-called “big-guns” are faced with difficult times caused by inflation. Keeping a business afloat during this period is not close to easy. With the national and global economy dwindling, businesses need to wake up so as to remain on the scene or they risk dying off sooner than later.
Wikipedia defines inflation as “a general rise in the price level of an economy over a period of time”. This implies that the general purchasing power for goods and services is reduced, as units of currency buy fewer goods/services. Nigeria is currently on an inflation rate of 16% with a forecasted 13.5% inflation rate in 2022.
In either case, the situation is not rosy. Hence, the need for
businesses to keep their heads above the water. Here are a few strategies that can help you manage your business during this period of rising inflation rates.
Loan rates definitely increase during inflation. The renewal is higher since there is a general reduction in purchasing power and the overall value of the currency. It will do your business good if you pay back loans as soon as possible and eliminate all avenues of debt. The good thing is that although you may not have control over the national inflation rates, you can control your internal process. Pay down your debts and lock in the rates so your business will have fewer problems to deal with in the long run.’
One of the greatest challenges during inflation is how to effectively manage your cash flow. Since the prices of things increase, it is crucial that you make cash available to fund operational costs. In this case, cash is king! It will be easier for you to pay bills and run your day-to-day operations if you build cash reserves.
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Inasmuch as on your own part, you are trying to avoid owing anyone or any financial institution, you should also not encourage your customers or partners to owe you. We are talking about inflation here and everyone wants to save their own heads. Don’t let the irresponsibility of your customers or business partners rub off on you. Don’t sell or render services on credit
. Contri hard for everybody, not only them. When making business deals, also make sure that they end in your terms, or at least close to it, where you will be making a profit and not running at a loss. The consciousness of this will help you make smart decisions.
This works best when you already have a stable cash flow. A good way to spend it will be to stock up inventory as much as you can. If your business involves buying and selling products, while preparing for a more grievous period of inflation, you can purchase the goods before their prices go up. And while selling, make the prices competitive enough. However, be careful not to risk your cash inventory for the purpose of stocking up inventory. Know your limits and work with them.
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Engage Small Price Increase
This is a strategy that can help your business survive in the face of inflation. The mistake that some business owners make is to grossly increase the prices of their products with little or no regard for their customers. It is safer and more effective to engage small price increase which will culminate gradually into big ones, rather than a straight high increase. It retains your customers’ trust and at the same time, gives you more money to service your business.
Featured Image Source: Carter And Merger Consult
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