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Tackling Inflation As An SME: 5 Strategies For Corporate Success

inflation

It’s no secret that inflation is on the rise. After the annual inflation rate across the United Kingdom rose to 7% in March 2022, Brits are seeing their highest price hike since 1992.

On the back of post-pandemic recovery, Brexit’s impact on overseas trading, and now the rippling impacts of the Ukraine war, both fuel and food prices are through the roof, sending both companies and consumers into a worrying spiral as frugality becomes key.

(Image Source: Yahoo Finance)

As you can see here, inflation numbers haven’t been so high in over a decade. Rising from 6.2% in just February 2022 to 7% only a month later, it’s no surprise that SME business leaders are concerned about what the future of inflation could mean for their company’s success.

According to a recent Business.org report on the effects of inflation on small businesses, 60% of the 700 small business owners surveyed revealed that they were concerned about the financial health of their companies in response to inflation.

In response, we have explored five key strategies that could be crucial to small business success on the back of inflation’s profit pressure. Read on as we delve into the effects of price rises on an SME landscape and discuss the small changes small business owners should make if they want to stay afloat. 

How Does Inflation Affect The SME Landscape?

The SME landscape has significantly grown since the onset of the pandemic. After 2020 saw a 35% increase in e-commerce-based start-ups, small and medium enterprises are facing increased numbers of competition, a push for company-wide digitalisation and now the effects of 2022 inflation.

Since the pandemic began, 92% of small businesses have seen an increase in expenses, with at least 16% reporting that their costs doubled in response to post-Covid inflation trends.

As global costs increase, small business owners have less purchasing power. In fact, 64% of SME business owners reported that they were unable to acquire the raw materials needed to meet rising consumer demand in response to fuel prices soaring and cross-border supply chain issues slowing down shipping times.

Alongside this, small business owners are also faced with a labour cost increase. As the price of living continues to demand higher wages across the board, start-up employers are struggling to meet new salary averages, which could result in poor employee retention rates and a lack of profit as the company’s labour force dwindles.

As a rise in costs across the SME landscape continues to affect company cash flow, here are five strategies SMEs can adopt on the way to financial recovery.

1. Prioritise Productivity

Productivity is king when it comes to battling the effects of inflation. Company leaders need to learn how to do more with less if they want to function successfully with a reduced cash flow.

A good way to start prioritising productivity is to simply take an audit of your current business processes carried out each week and circle what processes could be streamlined, delegated, and removed in order to bring a focus to the tasks with the most value add.

Secondly, it’s time to start automating. We’re not talking about a full-scale digital transformation, but there are a number of apps and services small business owners can utilise to automate repetitive tasks and reduce the potential for human errors. 

COO of Kapitus, Ben Johnston claims that exploring automation is a quick way to improve company productivity and value add. “As the cost of labour continues to climb, re-examine processes,” Johnston instructs. “Could time-intensive work be automated? Is there software that can be deployed to automate business processes like scheduling, order taking, billing, or collecting payments? Is robotic processing an opportunity when manufacturing a good or completing a repetitive task?”From streamlining financial planning to investing in SEO Tools and creative templates to boost marketing efforts, investing in automation is an easy way to reduce labour costs and free up more time for your workforce to focus on tasks with the most profitable gain.

2. Cut Any Unnecessary Expenses

If your small business is having cash flow issues, cutting expenses should be the first step a business leader takes when battling to keep an SME afloat.

In the same way as your business processes, take an audit of your expenses and start circing any unnecessary outgoings that can either be cut, reduced, or invested into a more crucial sector of the business.

CEO of Axon Optics, Bradley Katz suggests that small business owners should cut expenses where they can to ensure they still have a flexible cash fund for profit-building projects on the horizon. “Consider downsizing your office,” He advises. “For example, my business uses a hybrid remote/in-office model that allows the flexibility to move to a smaller, less expensive office.”

3. Embrace New Pricing Trends 

It’s important to keep on top of pricing trends in a period of high inflation. As a small business, maintaining your profit margins is key, but pricing your products fairly and on-trend with market averages is the only way to keep customer retention high.

As inflation continues to rise in 2022, SME business owners need to be tracking their competition using social listening if they want to price their products on trend with their consumer niche.

Start monitoring your competitor accounts and measure their success when altering prices to fit inflation demands. Often, small businesses are more successful when they offer a price that is just below their competitor accounts, as a spike in new consumer attention will make up for the loss. 

However, in response to 2022’s inflation spike, a recent report by The National Federation of Independent Businesses’ revealed that 72% of small business leaders have already raised their prices to address the new costs of inflation, the highest percentage, the annual survey has ever seen.

4. Cut Down Supply Chain Costs

Did you know that the average petrol cost rose by 12.6p per litre in March 2022 according to recent statistics from ONS? This is the highest monthly spike since the records began in 1990.

“Since late last year, prices have been rising fast as pandemic restrictions have been eased and firms face higher energy and shipping costs which they have passed on to consumers,” claimed the BBC in response.

As the price of shipping and supply chain trading rises in regard to a boom in transport-based costs, small business owners need to work on cutting down their supply chain-based costs if they want to battle inflation alongside an increased consumer demand.

In order to cut down supply chain-based costs, company leaders first need to highlight their current supply chain vulnerabilities.

From an increased reliance on just one supplier to investing in materials that are costly to ship and store, small business leaders who put all their eggs into an overseas basket will be more likely to fall victim to rising costs.

Instead, SME leaders need to be creating backup supply chain plans and source local alternatives to keep shipping costs down and turnover fast for the e-commerce boom.

5. Use Customer Insights To Predict Your Next Move

Last but not least, the key to success always has been and always will be your customers.

Knowing your demographic inside and out will quickly improve your position within your niche market and set you ahead of competitors who are also battling for engagement.

By simply tracking consumer insights using tools such as Finteza and Google Analytics, business leaders can quickly gain demographic profiling knowledge that can be used to help plan future campaigns and product launches while measuring consumer reactions to industry prices on the rise.

With a consumer-focused strategy in play, small business owners are more likely to see a rise in ROI and an increase in customer loyalty. Using insights to create an informed solution for your demographic’s problems will leave your profit margins growing and the cost of inflation melting away.

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