It’s an undeniable fact that skyrocketing inflation has been a topic of concern for Filipino business owners as of late. With the Philippines’ inflation rate reaching a record high of 6.9 percent in September 2022, business owners are generally unwavering in their attempts to stabilize their income and keep their ventures afloat. Amid inflationary pressures, entrepreneurs may face supply shortages due to the rising cost of raw materials and shipping, hindrances in the completion of finished products, and decreased profitability partly due to lower consumer purchasing power.
Small businesses, including micro, small, and medium enterprises (MSMEs), are even more vulnerable to the consequences of inflation. With small business owners having relatively less in the way of resources and financial backing compared to major enterprises, these effects can significantly hurt long-term survivability.
Still, it’s possible to effectively strategize your way through inflation as a small business owner. The economy may be beyond your control, but you can make a few operational changes to secure the longevity of your venture. That said, here are some tips you may want to follow to ensure the continuity of your business amid an uncertain economic landscape.
5 Tips on How to Cope with Rising Inflation
Consider Getting Extra Financing
Having a financial helping hand can go a long way in times of rising inflation. Securing extra capital through a credit line or loan can provide you with the funding you need to continue innovating your products and services. If you need extra financing to cover the costs of adjusting your operations, products, and services for better profitability, you should consider securing a loan through a reliable loan app Philippines-based entrepreneurs favor when it comes to immediate business urgencies. It would be ideal to secure a loan with low-interest rates and flexible payment terms to make borrowing a convenient experience that won’t negatively impact your cash flow.
Reduce Your Expenses
One of the simplest ways you can cope with inflation is by reducing your overall expenditure. To help you determine which expenses you need to cut, consider reassessing your service contracts or bills for your business credit card.
For instance, you may want to relocate your business to a commercial space with cheaper lease terms to save on rent. You can also choose to downsize, especially if some of your staff members can work remotely. How you will determine unnecessary expenses depends on you, but as a rule of thumb, you must focus on conserving capital without going overboard on cost-cutting.
Focus on Cash Flow
Cash flow is of utmost importance because it’s the lifeblood of your venture. To prevent your business from failing amid inflation, you need to focus on improving and stabilizing your cash flow. When your business increases its expenses but customers are slow in their payments, you need to take a few essential steps to prevent bankruptcy.
Increasing prices is a natural reaction to inflation, and it’s generally a necessary move to keep you from losing money. However, effective price increases often come with additional features such as product bundles and free features (i.e., free delivery). Moreover, you should time your increases properly: raising prices is probably not ideal when you’ve experienced quality issues or lost a significant amount of customers.
Furthermore, you should make it a point to be quick in your invoicing to sustain cash flow. It would be ideal to send your invoices as soon as you deliver your products and services instead of waiting until the end of the month. In addition, you should always be mindful of your accounts receivable ledger to stay on top of your deliverables and resources. Be firm with clients who are past due with their payments and apply practices such as stringent credit checks and upfront deposits for large orders. To encourage your clients to pay up early, consider providing incentives such as discounts to those who pay ahead of time.
Make Adjustments to Your Products
As mentioned earlier, strategies such as product bundling and throwing in free features can justify price increases for your offerings. With this, you may want to do market research to determine relevant insights such as your most popular products and peak periods such as the holiday season or payday week. These will help you craft strategies such as promos and bundles which may entice customers to spend more.
On a related note, you may want to consider business strategies to conceal potential difficulties in securing an adequate supply of raw materials. For example, if you run a restaurant business with hundreds of items on the menu, you may want to zero in on the most popular dishes and set aside the weakest ones. Having a smaller amount of dishes on the menu allows you to decrease expenditure related to sourcing, shipping, and storing materials.
Diversify Your Supply Chain
As the name implies, the supply chain can lead to a chain reaction of risks, especially during rising inflation. Some of the common supply-chain issues small businesses face include higher material costs, more expensive shipping fees, material shortages, and the resulting delays in delivery.
As such, you may want to distribute the risk by avoiding over-reliance on a handful of vendors. Diversifying your pool of suppliers allows you to choose among various materials and alternative products that may end up being more cost-efficient for your business.
Staying Empowered Amid Inflation
Running a small business is already a difficult feat in itself, but the task can be extra tough when facing the staggering costs of goods and services. Even so, these economic changes don’t have to get in the way of your goals as a business owner. Each one of us needed to accommodate a few changes in our lives to cope with inflation, and business owners are no different. But true to the Filipino characteristic of resiliency, the Philippines’ business owners are more than capable of adjusting in order to come out better than before.