5 ways your small business needs to tackle inflation – unless you’re the Great Gatsby

MV5BMTkxNTk1ODcxNl5BMl5BanBnXkFtZTcwMDI1OTMzOQ@@._V1_SX214_The Great Gatsby, or Jay Gatsby, the lead character in F Scott-Fitzgerald‘s novel, was a bootlegger. The new movie shows the millionaire protagonist living a lavish lifestyle but behind-the-scenes he made his wealth from selling illegal liquor during the Prohibition period.

Jay Gatsby would have made even more money in our present inflationary times. But commentators who have examined his criminal past say that bootlegging was a fairly low-margin business. The reason: he had to pay for bribes, lawyers and mob protection. It is also doubtful that he would have raised prices above all his many competitors.

Warnings of high inflation are coming from economists, business owners and consumer unions as the Rand got beaten to smithereens by the US dollar. It’s difficult always to make predictions about how fast inflation will grow but it’s best to take precautionary measures now than wait until your small business gets a kick in the stomach from inflation.

Taking precautionary measures against possible disaster can be a brave act. It’s much harder to sell prevention than cure. This is why millions congratulated actress Angelina Jolie for her preventive double mastectomy.

“Once I knew that this was my reality, I decided to be proactive and to minimise the risk as much as I could,” Jolie wrote in a New York Times op-ed titled “My Medical Choice”.

What are the proactive precautions small business owners can take to minimise the problems that inflation brings? Why is this so important? Because small businesses are price takers. They have to watch loading prices and experiencing a backlash from customers. Kill demand and you kill sales.

Here are 5 ways you can deal with the harmful consequence of inflation:

1 Increase your cash reserves as a buffer against higher expenses. This is difficult for business owners. A study of SMEs in South Africa showed that owners take out too much cash from their business as salaries for themselves.
2 Reduce debt. Interest rates rise with inflation. Bring down trade creditors to increase liquidity.
3 Stock up on inventories where you can score bonanza pricing. This is a difficult one because at the same time you need to chop inventories to the bone.
4 Manage wage pressures. You can’t necessarily reduce staff but manage their expectations and tie increases to productivity performance.
5 Make small price increases sooner rather than later. Don’t wait until cost pressures force you to slap up prices that reduce your demand.

Yes, higher sales can solve most of your problems in your small business including inflationary pressures. Increase your sales but in inflationary times, grow profitability.

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