Blame it on the war in Ukraine or the rising interest rates; Inflation has led to a dramatic increase in the prices of various goods and services in the United Kingdom. As per the Office for National Statistics (ONS), inflation has increased from about 2% in 2021 to about 10.1% in 2023. Apart from households, entrepreneurs are also finding it tough to tackle this skyrocketing inflation. For businesses, it means a significant increase in the cost of raw materials, labour cost, and energy bills resulting in low profitability and a direct effect on their long-term investment plans. In such difficult times, entrepreneurs must act swiftly and employ effective strategies to maintain financial stability. So, if you are also an entrepreneur desiring to tackle this challenging situation, here are some actions you can take in the long run.
Review the prices
This may sound quite obvious, but yes, it deserves a mention. During high inflation, it is vital to regularly review your pricing strategy as this helps to stay competitive in comparison to other businesses offering similar goods or services. It is also advisable to adjust your pricing according to changing customer preferences and market demand. By reviewing your pricing, you will be able to ensure that your prices are perfectly aligned with the value they offer to your customers. This is important to meet customer expectations and maintain customer retention.
Negotiate with vendors
During high inflation, your ability to negotiate well with your suppliers or vendors can make a huge difference! So, try to have better discounts to decrease the cost of your raw materials and to navigate inflationary pressures more effectively. You can also try to have a long-term contract with clauses such as price adjustment to accommodate the market dynamics to prevent a sudden increase in cost. If you think negotiation is not possible, try to do bulk purchasing by partnering with other businesses because, in such a situation, leveraging collective buying power becomes the need of the hour.
Cut business expenses
Try to cut your business expenses, such as energy bills, office supplies, rent, etc. For the same, think about the feasibility of generating renewable energy on-site with the help of solar panels or wind turbines to lower your long-term energy costs. Try to also downsize your office space or shop and implement stricter employee travel policies to reduce your overall operational cost. It is equally important to identify the non-essential overhead costs so that you can take adequate measures to reduce them drastically. This will largely help you to mitigate the impact on your profitability.
Monitor financial statements
It is best to monitor your financial statements to be well prepared to overcome cash flow challenges that may arise anytime. For the same, you need to analyse your balance sheets, income statements, and cash flow statements. Remember, this monitoring will help you understand the overall impact of the rising inflation on your business by making well-informed business decisions.
Streamline operational processes
In tough times, streamlining your operational processes by leveraging the power of technology can yield wonderful results in terms of improved productivity. However, for the same, you need to first thoroughly analyse your existing processes and spot operational bottlenecks and inefficiencies (if any). The streamlined operational processes must align with your customer’s expectations and enhance their overall satisfaction rate.
Look for new markets
Think about looking for new markets. This could be within your city, country or even overseas! This will diversify your revenue stream and help you to compensate for the losses in your current market with the gains in the newly explored markets.
Lastly, never feel shy to seek advice from experts who can guide you to mitigate the challenges of a high inflation rate. Skyrocketing inflation is a formidable challenge, but strategies such as reviewing the prices, negotiating with vendors, cutting business expenses, monitoring financial statements, streamlining business operations and seeking advice from the right people can prove helpful.