Rising prices are making headlines recently, especially in the past few months.
With the Ukraine war and a weak rupee, the annual whole sale price (WPI) inflation rate accelerated to 15.08% in April, raising risks for businesses.
As inflation rears its ugly head, large-scale companies pass along higher costs to consumers. But, small businesses are generally in a much weaker position to adjust prices when inflation kicks in.
With costs increasing for raw materials, how can you protect your small business from rising prices? Read on to find out.
3 ways to protect your small business from Inflation
Rising prices is a rising concern for small business owners. Some categories like food, grocery, and handmade products are prone to inflation than others. Here are some general ways to guide your business through this
1. Small and frequent price increases
Even if you haven’t started noticing challenges in making profit, you should revise your prices. In fact, inflation or no inflation, revising and increasing prices should be a regular part of your business strategy.
Confused on setting prices for products? Here’s a guide on how to set the right price for your product.
Become aggressive with small and frequent price increases. This is generally better than waiting and trying to catch up with soaring raw material prices at some point with one big jump
Try to target your price increases based on specific raw material price changes rather than raising prices across the board. This will cause less damage to relationships with customers.
2. Check your cashflow
As inflation soars, the purchasing power of your cash savings may decrease significantly. This means that keeping a large amount of liquid money might be damaging. So, consider investing that money to keep up with the market.
The key is to grow your profits and not just sales.
For this, you need to keep books of accounts and properly determine profits and losses.
Here’s a free mojoVersity course to learn the basics of accounting and how to track financial health of your business.
3. Manage inventory smartly
One way to beat of inflation is to stock up on inventory and/or raw materials before prices from your suppliers go up. At the same time, make sure not to jeopardise your cash reserves when buying.
Related Read: Top inventory management tools for your small business
Anticipate what products you need will become scarce in the near future. For this, you can communicate with your suppliers to get a sense of what products are in demand.
Another way is to secure a long-term contract with your suppliers to maintain stability in your inventory and prices.
Inflation may be a completely new experience to many current business owners, as we have not had high rates in at least 17 years.
Monitor your profit margins carefully. Prepare to grow profits, not just sales. Be more knowledgeable to stay ahead.
Speaking of staying ahead, there’s a way to manage your eCommerce business finance and rise above your competition: start an online store.
Instamojo offers a free plan for you to start selling online easily. Get started today.