Can you imagine that in January, it cost me about £40 for fill up my car with Diesel? Now (5 months later) it costs over £70 to fill up the same car! Almost double the amount!!
This price increase is an example of inflation.
Economist would describe Inflation as the decrease in the purchasing power of money. £40 would have filled my car in January, but the same £40 cannot do the same in May. It has lost it’s power to buy me a full tank of fuel.
There are so many things that drive inflation and at the moment, the biggest driver is Russia’s invasion of Ukraine (a country that many of us have never visited, let alone find on a map). Regardless of the cause of inflation, every business owner must be aware of the impact it has on his or her business.
Inflation shows up mainly in your cost of supplies – meaning that you feel the pinch as your suppliers, one by one, increase their prices causing your profit to slowly erode.
So what can you do as a business owner to prepare for the inevitable?
Here are 3 tips that you can apply to your business right now:
- Review the costs of everything in your business
How much does it cost every month to keep the lights on in your business? This is your breakeven point. It will definitely be different now compared to January because the price of fuel (which will drive the price of almost everything) has spiked. Do you know the difference?
- Shop around for alternative suppliers
Can you find a cheaper supplier for your raw materials or find cheaper ways to run your business? This is of course without compromising on quality. This is a great way to start reducing your business’ running costs and control the inevitable impact of inflation.
- Review your Sale Prices
Are you still making a profit after considering the above 2 points?
If not, your business is not sustainable and it will be a matter of time before you have to close shop. You must consider increasing your prices.
Price increase is a delicate balance between being profitable and keeping your clients happy (especially if you are providing a product or service that competes mainly on price). It might be time to look for ways to add value to your clients so that they recognise YOUR value and stay with you even through the price increase?
We live in a globalised world with which has its advantages and disadvantages. Inflation is one of the disadvantages of it. But we also have access to resources from around the world especially through the online platform which can enable us to run lean businesses and still maintain profitability even during such challenging times.
There are ways to overcome inflation as a business owner.