Inflation is something we hear about more and more lately. It is “the decline of purchasing power of a given currency over time” where it takes more dollars to buy the same thing than it used to. When we artificially increase the amount of dollars we have in circulation (rather drastically; so much so, we stop reporting it…), inflation should be considered a risk to business and prosperity that business owners consider.
As we’ve said:
We know something about planning at TwelveDawn. Having decades worth of planning and executing operations across the world, from readying for quiet conversations negotiating M&A deals, to optimizing busy and loud industrial manufacturing environments, we’ve probably seen it. Like any other business activity, selling your business should be done deliberately, confidentially, and by experts. Allow us to be your partner in that journey.
Given such, staying ahead of the problem, some thoughts on dealing with inflation in a small business:
Placing the customer first, before you raise prices, focus on what you haven’t for quite awhile – productivity, cost, and your supply chain. Optimize all. Check your processes and procedures. Reduce unnecessary outlays or steps. Seconds turn into minutes, and minutes into hours. Time is money when you’re paying for it or when you’re losing an opportunity to be better applying time somewhere else.
Include your inventory in the review. Inventory sitting at a particular cost stays at that cost while prices might rise. Great. But inventory with an expiration date has a cost that moves with the market, so optimize your quantities and delivery schedules. And consider that while you may operate on budgeted margins given a consistently known inventory and recognized revenue, when the cash moves and you end up replacing inventory your budgeted cost may take a hit.
As for your likely largest expense, your people – be transparent.
When it’s time to move prices as the market demands, do so properly. Move them in small amounts, adjusted often as compared to your competitors or the broader market, no matter the strategy. Be the first to move, slowly, if necessary; playing catch-up with price shocks are rarely received well. Add price increases to high demand, non-core product services. Where supplemental income is derived from optional or expedited shipping, installation, insurance, or similar, move the needle there first. And communicate with your customers.
Consider having an outside advisor or consultant take a limited look at your operations to suggest options to improve your business. You’re the expert, but like any expert our vision can get narrowed; changing perspectives, or getting an independent assist to see from a different angle can help immensely. The positive ROI generated may really be worth it and may help develop your business into a far better asset to later cash-out through a sale.
“…inflation should be considered a risk to business and prosperity that business owners consider.”
