5 business finance ideas to combat inflation

Part of your job as a business owner is to stay up to date on economic trends—like inflation—that can affect your operation. In the current United States economy, high inflation is a growing concern. According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 6.8% from November 2020 to November 2021, marking the biggest 12-month increase in almost four decades. 

Pandemic-related business shutdowns have led to severe supplier shortages, while factors like vaccine rollouts and business reopenings have contributed to high customer demand. The result in part is a steep rise in the cost of goods and services. 

If your business has already been affected by inflation—or if you’re worried about the potential consequences of it—you’re not alone. Seventy-four percent of small business owners are concerned about inflation, according to the US Chamber of Commerce Small Business Index for Q4 2021, and 71% said the increase in prices has significantly impacted their business in the past year. 

How inflation affects small business owners

Inflation doesn’t automatically jeopardize every business, nor does it affect all businesses to the same degree. However, it can have an impact on everything from profitability to customer satisfaction. Here’s how: 

• Disruptions in the supply chain can make it difficult or impossible to complete the production process for certain products, not to mention obtain enough inventory to meet customer demand. 
• Due to a shortage of materials, you may have to pay expedited shipping fees or fork over more cash for the same supplies and products. 
• Increased expenses can limit your cash flow and make it harder to achieve profitability. 
• Raising your prices can turn away customers. 
• Your employees might start to demand higher pay as their cost of living increases. 
  

What can your business do to combat inflation? 

Combating the effects of inflation can be daunting, but the good news is you have options. There are both immediate and ongoing steps you can take to protect your business and improve your bottom line. 

Before you make any drastic changes, though, take the time to consult a business accountant for advice. It’s always helpful to have external support when preparing your business for the future, but professional guidance is especially critical during uncertain financial times. 

Here are five strategies to consider: 

1. Apply for a business loan to invest back into your operation

If you need more working capital to keep up with customer demand, getting a business loan can help. Almost half (45%) of business owners surveyed in the Small Business Index have taken out a loan in the past year to deal with inflation. The silver lining of taking out a loan when inflation is high is that your dollars go further; if inflation persists, there’s a good chance you’ll be paying back the money you borrow with cheaper cash. 

However, to ensure you can responsibly pay off your loan, it’s crucial to use your funds to invest back into your business. Ideally, you want to put your loan toward costs or projects that propel you forward—and better your bottom line. That might mean:  

• Buying inventory in bulk to satisfy customer demand
• Hiring new employees to stay on top of increased business
• Ramping up marketing to attract new customers 
• Purchasing technology or equipment that facilitates operations
• Investing in real estate or land

2. Raise your business’s prices

Increasing your prices is one of the most effective ways to maintain cash flow and stay profitable when inflation is high. According to the Small Business Index, nearly two in every three small businesses (63%) have had to increase the price of their products and services in 2021. 

There’s a good chance you’ve already shifted your pricing structure over the past year, but if you haven’t—or if you need to make adjustments—now is the perfect time to consider your options. 

Keep in mind that raising prices across the board isn’t always the right tactic; you risk upsetting loyal customers and turning away new ones. Instead, start by increasing the price of your most unique or desirable offering, then make small strategic changes from there. Here are just a few ways to entice customers while staying competitive: 

• Bundle multiple products at a higher price point, give a complimentary gift with purchase, offer extended warranties, or offset higher prices with discounted or free shipping. 
• Offer extra services or rewards for subscriptions. 
• Invest in your customer experience by strengthening customer service, making the shopping process more fun, streamlining payments, or implementing customer feedback. 
• Shift your marketing tactics. You might need to position a product differently to justify the higher price point, or work on targeting less price-conscious customers. 

3. Reduce business expenses

Another way to combat inflation is to reduce your business’s overhead costs and variable expenses. The more affordable your expenses are, the more cash you can put toward replenishing inventory, improving your customer experience, or creating a cushion for emergencies.  

As you review your expenses, consider the value they bring to your operation. Try not to cut any costs essential to your employee wellbeing, operational efficiency, or customer satisfaction. Here are some to consider: 

• Consider moving your business to a more affordable location or subletting part of your space. 
• Eliminate marketing channels with minimal ROI, and double-down on low-cost, high-impact strategies like social media campaigns and email promotions. 
• Consider refinancing one of your loans to save money in interest fees. 
• Cancel business subscriptions you don’t use. 
• Track and regularly evaluate your expenses for necessity and value. 

4. Work on employee retention

Without strong employee retention efforts, you can lose valuable workers—and struggle to meet customer demand. In the US, employees are quitting at record-high rates (four and a half million people quit their jobs in November 2021 alone) in search of better working conditions and compensation. 

To keep your workforce intact, think about what you can offer your employees. Along with higher pay, Zety’s 2021 survey found that the majority (77%) of employees today want flexible working practices, better employee benefits, and more stable work opportunities. To accommodate employees’ needs, try the following: 

• Survey your employees to find out what they want most. 
• Reevaluate your compensation structure for equity and competitiveness. 
• Introduce benefits beyond health insurance. Think: wellness stipends or flexible paid time off.
• Offer more flexible work hours or give employees more say over their shifts. 
• Prioritize your employees’ overall wellbeing. Offer mental health resources like employee assistance programs; recognize employees for their efforts; and advocate for a healthy work-life balance. 

5. Invest in business technology

When inflation levels are high, you can protect your bottom line by investing in technology that helps you accomplish more with fewer resources. Look for opportunities within your business to simplify operational processes and increase internal efficiency.  

Start by reviewing the workflows in different areas of your business, looking for inconveniences or delays along the way. From there, research solutions. You might want to consider: 

• Customer relationship management software (like Zoho or Salesforce) to keep track of sales and customer connections
• Inventory management software (like Zoho Inventory or Orderhive) to track stock levels and analyze sales patterns 
• Payroll software (like Gusto, Bob, or Quickbooks) to streamline bookkeeping and calculations 
• Project management software (like Monday, Kintone, or Asana) to organize workflows and facilitate collaboration 
• Point-of-sale software (like Woocommerce or Square) to integrate customer payments with inventory management and email marketing 
• New industry-specific equipment like medical devices or construction machinery
  

Get ahead of inflation

Fighting inflation as a business owner can be challenging, but there are practical ways to get out ahead. If you think financing could help, consider applying for a Funding Circle term loan. With flexible terms and affordable interest rates, our business term loans can help you weather economic uncertainty and set your operation up for success. Plus, the application process takes under 10 minutes, and you can get funds in as few as three days if you qualify. Learn more about our terms or apply today.

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