At the time of this writing, the latest report said the Annual Inflation Rate in the US was 7.9% for the 12 months ending in February 2022. Predictions are for it to go above 8.0% for the entirety of the Q1…maybe as high as 8.5%! (Update: a day or two before this went live, the March number was released…8.5% is here, my friends.) You’ve been out to eat, gone to the grocery store, or—worse yet—filled your car up with gas lately…these numbers aren’t a big surprise to you. The rising costs of almost everything are definitely eating into household budgets, but they can take a huge bite out of your business budget, as well. So what are a few things you can do to help protect your business in these times? We found a few things to consider.
Refinance Your Debt
Take a good look at what your business owes…what have you financed over the years? Furniture, equipment, office expenses…whatever else you may have put on a “pay it back later” basis. The important thing is to take into consideration what your interest rate on these items is. Maybe you put it on a credit card and have 8 to 10% APR. Right now you can probably do much better than that.
At the moment, personal loans are starting at 4.5%, business loans can range from 2.5 to 6%, and mortgage rates are sitting comfortably at 4.5 to 5.5%. If your personal or business credit score is very good or excellent, you can stand to save tons of money on an annual basis and that can be a huge boon to your business in these tough times. You should jump on this soon, though, as it’s widely believed that interest rates will increase in months ahead.
“Shrinkflation”
You’ve been hearing about “shrinkflation” increasingly recently. It’s not a pretty term, but it can help your business stabilize its footing. If you produce something, the bottom line is that the raw materials and production price has gone up. You have a choice…pass those price increases along to your end user or do what a lot of larger companies are opting for…keep the price the same while decreasing what you deliver.
This can mean few ounces of chips in a bag, a slightly smaller candy bar, or a smaller portion at your favorite restaurant. Psychologically it might be a little easier for the buyer to accept paying the same price and receiving less…in many cases they won’t even notice it. It’s not the perfect solution for every circumstance, but it is something you should think about.
Longer-Term Agreements
Every business has some costs they can fix in place for some term. The most basic is the cost of the property you are using to conduct your business. If you can lock in a lower-cost for your workspace by signing a longer lease term, now is the time to do it. With the increase in remote work, commercial real estate has seen a big hit in the last couple years. If you can commit to your landlord that you’ll stay another two years instead of one, you may be able to negotiate yourself a much better deal.
Depending on your business, you may be able to negotiate other long-term pricing agreements. Airlines buy fuel far ahead of time at a set price to protect their business from the volatility of the marketplace, for instance. What does your business spend money on regularly? Are there things you can buy in bulk now to save big money in the future?
Changing Business Strategies
It seems like a good time to look at the last couple years and the changes we’ve seen in the workplace…and consider what changes you can make permanent. Does your business lend itself to automation in some ways? The fast food sector started embracing automation years before the pandemic made it fashionable. While you may never be able to achieve high levels of automation in your business sector, even making small changes can improve the efficiency of what you and your employees are able to do. How much time could you save just by automating emails to potential clients?
Another big change we’ve seen is moving to a remote or hybrid working model. Again, every business is different, but you may be able to reduce the amount of space you lease and reduce your utility bill by adopting these models…and it might be a great benefit to loyal employees that you don’t want to lose! They can save on the price of fuel and wear-and-tear to their personal vehicles by not putting an extra 25 to 50 miles a day on them just driving to the office.
I don’t have a crystal ball…neither do the folks on CNBC or Fox Business Channel…none of us can predict how long times are going to be difficult. But all signs point to this being an excellent time to reassess some of your business practices and expenses to see what you can do to cut your spend today and control it for the next couple years.