Latest / The SmallBizChat with Melinda Emerson / How To Handle Inflation In Your Small Business

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How To Handle Inflation In Your Small Business · The SmallBizChat with Melinda Emerson

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  3, 2, 1, 0, ignition, I left off.
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  Ending small business failure.
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  Welcome to the small biz chat podcast.
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  With the number one small business expert, Melinda Emerson.
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  Melinda's goal is to end small business failure.
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  And she'll give you the information you need to succeed and live the life you dream of.
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  Now here's your host, the small biz chat lady her self, Melinda Emerson.
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  Hi, everybody.
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  This is Melinda Emerson's small biz lady.
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  And I wanna welcome you back to another episode of the Smallbizchat podcast.
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  Today, I am kicking it solo.
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  I wanted to come to you all directly to talk about this dog on inflation that is plaguing so
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  many small businesses.
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  And I know many of you are trying to figure out what do you need to do now, because it was
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  like, we're still some of us still recovering from the pandemic and now turn around.
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  Now this inflation is getting crazy.
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  They're raising interest rates.
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  Gas prices are up.
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  I mean, a lot of stuff is going on, and I'm sure you're feeling the pinch.
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  You're feeling the pinch probably in your shipping charges, delivery charges, supply
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  chain's still an issue for a lot of small businesses, but don't be discouraged.
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  There's always things you can do to mitigate and what I'm gonna share with you today or the
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  ten areas that I think you need to look at in your business to weather this inflation because
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  inflation might take a time to go up, but it doesn't go down really quickly.
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  So we could be into another 12 to 18 months of this inflationary period.
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  So I really wanna give you guys some tips and encouragement about things that you could be
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  doing right now in your business to sort of manage all of this.
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  So the first thing I wanna tell you is you gotta raise your prices.
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  Look, everybody's raising their prices on you.
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  You gotta raise your prices too.
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  And you know, everyone should get it because every kind of business, large, and small, even
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  SAS businesses that are online, they don't have any additional costs are raising their fees.
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  So you need to raise your, you need to raise your prices too, but you know, your business
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  actually can gain more from this strategy than you may think because you wanna survey the
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  marketplace and see if you've been underpricing your goods services anyway.
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  I mean, you could possibly be 25% lower than others in your market.
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  And so if you are able to raise your prices modestly, you probably won't lose any
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  customers.
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  So you just wanna make sure that you're clear about, you know, use this as an opportunity to
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  find out what everybody else is charging and raise your prices, accordingly.
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  You know, and certainly if you decide to raise your prices, which I hope you do, there's
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  there's some creative ways that you can communicate with your clients that really could
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  benefit you in the long run.
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  So for example, you could put out a notice to your clients.
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  Hey.
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  In 30 days prices are going up.
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  You might wanna order now.
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  And, really, you could create a bit of a scarcity model and get people to buy from you
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  preemptively because they don't wanna get necessarily hit with the new fees.
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  So there's lots of things you can do to communicate your your prices are going up in a
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  way that could benefit you right now.
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  So think about that.
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  What you wanna raise your prices to and then how you wanna communicate that because it
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  really could be a win win all the way around.
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  The other thing you wanna do is pay really close attention to your productivity and then
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  of your team.
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  You wanna make sure that everybody is doing what they're supposed to do.
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  Right now, you cannot afford to pay people that are not delivering.
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  You cannot afford to pay people who exhaust you or that you have to micromanage.
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  You also wanna make sure that you're being really productive with your own time.
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  You know, one of the things I tell entrepreneurs all the time is that as the
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  business owner, you need to be spending your time doing 1 of 3 things.
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  You need to be out there talking to new customers.
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  You need to be out there talking to existing customers, checking in on them, nurturing that
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  relationship to get that all in important repeat order.
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  And the third thing you gotta do is watch the cash flow, figure out what's going on with your
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  money, is it time to try to go to a bank and get a line of credit?
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  You know, you need to be thinking about your business strategically in terms of money moves
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  as well.
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  As customer moves.
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  So marketing and finances is where I think most small business owners need to be spending their
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  time, especially right now.
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  So you need to be paying attention to your own productivity, but you need to be holding your
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  team to the fire.
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  Certainly, any contractors you're using They're not delivering.
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  That's not okay, and that's an expense that you can cut.
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  The other thing I want you to think about is how you can refine your business operations.
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  You know, right now is a really good time to reevaluate the specifics of how your business
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  functions.
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  You wanna consider, you know, a well thought out expansion strategy or adding alternative
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  lines of of goods and services to increase your profit margin.
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  And and some of these types of development opportunities can help you increase sales,
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  which will in turn offset the amount of money, you're gonna have to invest, to create them.
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  And so you really want to take stock of your current best sellers and use them to their
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  advantage.
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  Right?
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  So you wanna look at what selling, sell more of it.
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  Maybe you reduce the amount of things that you're selling so that you can focus just on
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  things that you know people really want, and that will in turn free up space in your
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  warehouse, free up cash flow, things like that.
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  So you really wanna kinda be strategic right now about where your business is going in the
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  next 3 to 5 years.
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  Very important.
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  I think if you lean into your best sellers and try to sell more of them in more places, you're
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  not only locking in something that you know is successful but you can also start to negotiate
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  better prices perhaps with your manufacturers or if you're buying something wholesale.
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  So you really do want to look at volume discounts for yourself and how you can leverage
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  that in your business operations And, certainly, the holidays are coming.
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  You wanna plan for the holidays early.
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  So you wanna figure out what are you gonna put on sale then and stock up on it early before
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  everyone else starts calling your suppliers as well.
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  The other thing you wanna do is take a close look at your subscriptions and service
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  contracts.
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  All of us pay for software.
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  We don't use So this is a good time to go through your monthly financial statements of
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  your business, see what's being automatically debited from your account.
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  Whether it's monthly, quarterly, annually, find out if you're still using it, or did you ever
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  use it, we were paying for project management software that nobody on my team was using.
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  So you know what?
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  I cut the cord on it.
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  So you've gotta make sure that you're not out here paying for things.
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  I realized we actually had 2 accounts to deposit photo.
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  Ridiculous.
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  Why will it be paying for 2 accounts?
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  Not paying attention to the bills.
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  That's how it happens.
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  So this is a good time to sort of, like, go through and look at what you're paying for and
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  cut things that you don't use or that you don't use enough to justify the cost The other thing
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  I wanna suggest that you do is automate whenever possible.
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  There's lots of stuff connected to whether it is a shopping cart abandonment funnel or a
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  welcome onboarding funnel for new customers There's lots of stuff you can automate.
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  You can automate invoices and invoice reminders.
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  You can set up your invoicing system on bill.com so that you can pay through bill.com.
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  There's lots of things you can do to take manual work off of you.
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  And so look at what you can automate, you know, marketing and invoicing is a great place to
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  look.
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  Also, It's time to get real about your debt.
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  What kind of debt are you carrying on your credit cards?
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  What kind of debt are you carrying on your business?
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  Do you have outstanding business loans?
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  This stuff needs to get cleaned up because if you're gonna go out there and perhaps, you
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  know, pursue additional types of funding for expansion, you can't be having a whole bunch
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  of, you know, needless credit card debts.
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  So you wanna get on a mission right now to pay everything off, pay down stuff so that you can
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  have, you know, runway to borrow more.
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  And so look at your debt, look at where you are, figure out if can you double up some
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  payments, what can you do to get rid of debt?
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  That is what you wanna do because, you know, we're in an inflationary period.
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  Interest rates are going up.
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  You know, your interest rates on your credit cards go up every single time.
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  They raise interest rates on everything else.
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  So you wanna get rid of that kind of debt as soon as possible.
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  You also wanna focus on your cash flow.
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  You wanna make sure that you've got 6 to 12 months of working capital in an account.
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  Set it up now.
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  Set up a money market account and just put the cash in there and just have it liquid because
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  you don't know what's gonna happen, and you just wanna make sure that you're in a position
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  to handle things or to handle customers not paying you on time and things like that.
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  So you wanna definitely have, an emergency savings account, if you will, for your
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  business.
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  And also too, you know, now might not be a bad time to go talk to the bank about what they can
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  do for you.
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  Would they be willing to do a line of credit for you?
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  I mean, I always say start with the bank because that's the lowest interest rate you're
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  gonna get.
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  And that that doesn't work, then you need to find a CDFI or a community financial
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  development institution in your community that will, you know, perhaps give you a line of
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  credit Those guys tend to work with businesses, business owners that have credit scores that
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  are a little lower.
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  If you have a 620 or higher, a CDFI will work with you.
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  Banks won't really touch you if you're under 700.
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  So you really got to be 700 or higher for a bank to look at you.
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  You've gotta be positive cash flow with money sitting in the bank before you go talk to a
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  bank about a line of credit.
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  And just keep in mind if you're gonna go and pursue a line of credit, they're only gonna
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  give you 10 to 15% of your net revenue.
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  So you've gotta make sure that you know what you need and that you have the cash flow to to
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  warrant what you're asking for.
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  And then figure out how you can lower your supply chain risk.
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  You should have 2 vendors that provide everything for you.
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  Don't be beholden to one manufacturer one wholesaler.
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  That is always dangerous because they can raise the price on you and you don't have any
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  options, or you just they could change how they do something and you don't have any recourse.
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  So make sure that you have 2 or 3 options where to get materials from, especially coming into
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  the holidays, you wanna make sure that you stock up on things early because There's gonna
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  be a lot of ecommerce online shopping going on.
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  So you wanna make sure that you do not miss out.
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  The other thing too is that I would say look at all of your employees and figure out who your
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  next hire would be to replace every single one of them because Right now, nobody is loyal.
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  People are loyal down to the last dollar.
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  So if somebody offered your people $2 more, they could very well leave.
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  And it's been a war for talent for years, but now it's like it's absolutely crazy.
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  So make sure that you have a backup plan for the backup plan in terms of your staff because
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  you wanna make sure that you have enough staff to get through your heavy season.
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  It could be the fall.
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  It could be Christmas.
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  But you just wanna make sure that you have enough staff because there is a real labor
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  market.
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  I don't know that there's a shortage out here, but I just think people employees have a lot
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  more options.
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  And if you're a small business, you can't offer the kind of benefits package that large
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  businesses do.
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  So you wanna make sure that you're taking care of your people the best way that you can.
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  But that you don't be silly and think that these people are gonna be loyal to you.
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  If somebody waves more money in their face, they are leaving.
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  And lastly, I think just in general, it's a good time to revisit your finances, sit down
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  with your accountant, Look at your budget, look at where you are for the year in terms of your
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  profitability, and just make sure you know where you are at.
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  In terms of your debt, in terms of what kind of investment you need to make in your business,
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  you know, how you're trending for payroll, just make sure that you know where you are
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  financially.
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  It's a great time to sit down with your accountant and just make some plans for the
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  fall and figure out how you can leverage anything that's going on so that you can really
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  reduce your tax liability.
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  You know, now is all is always a good time to tax plan before tax season.
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  So you definitely wanna sit down with your accountant look at your budget, maybe adjust
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  your budget, or create a new one based on the inflation reality going on right now.
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  Nobody planned on materials being as expensive as they are.
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  Nobody planned on gasoline being $5 a gallon.
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  I mean, so you've gotta make sure that you adjust for that that you know what your
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  profitability is based on these new realities out in the marketplace.
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  And if you do all of that, if you're on top of all of this stuff, you will weather this
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  inflation and possibly recession that's coming.
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  So I just want to encourage you that all is not lost.
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  It's just gonna require a little bit of belt tightening, and we're all gonna have to do it,
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  but you can do it.
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  This is Melinda Emerson, the small business lady.
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  You're listening to the small business podcast, and I can't wait to see you next time, but I'll
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  leave you with this.
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  You never lose in business.
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  Either you win or you learn.
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  Goodbye, everybody.
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  Thanks for listening to the small biz chat podcast with Melinda Emerson.
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  Subscribe to this podcast wherever you listen to podcasts, and join us next Wednesday for
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  more fantastic information and interviews.
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  You can find more sources and small business success strategies by visiting Melinda's
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  website succeed as your own boss dot com.
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  Thanks again for listening, and we'll see you next week.