In January 2022, the inflation rate rose to an all-time high in the last 40 years: 7.5%. This affected everyone adversely as the purchasing power of money fell significantly. The need for a hedge against inflation increased as individuals and businesses faced inflation’s impacts. These impacts were felt much more severely on small companies’ and start-ups’ ends as they struggled in the survival phase of their business. If you are a start-up owner, here is how you can protect your business from rising inflation from now onwards:
Table of Contents
1. Cash Flow Management
If your start-up capital or cash is stored in hard currency, it can severely impact your business in an inflationary period. With rising inflation, the real purchasing power of that cash will go down, and you may end up facing losses at the start of your business.
To prevent this situation, you can look into possible investment options which have returns higher than the inflation rate. This may include stocks, bonds, cryptocurrency, and real estate. Hiring or consulting a financial expert to advise you on appropriate investments is advisable. Keeping a minimal amount of hard cash to get you by the everyday needs of your business and investing the rest of the capital is the key to preserving your purchasing potential in this rising inflation.
2. Gradually Raise Your Prices
Increasing the inflation rate means that costs for your business will increase too. This may adversely affect your profitability and even lead you to loss-making. You can cut down all the unnecessary overheads to maintain your profit margins or raise the prices of your products and services.
However, your customers may not like the price hike. If the price elasticity of your product is high, increasing the price of your product may even lead to losing customers. The best way to deal with this situation is to gradually increase your prices to minimize the impact of price hikes on your customer base.
3. Diversify Your Product Portfolio
If you want to grow and expand your start-up even in the tough inflationary times, you can try branching out by improving your existing products and adding new products. These can help you get more customers and retain the interests of the existing ones.
This will help you expand your business and give your customers more options. Adding more products to your product line will also distribute the financial risk associated with your business and help you sustain growth even if the demand for one of your products falls.
Integrating technology into your start-up can help you decrease your overhead labor costs. You can look into integrating robotic process automation (RPA), workflow, and intelligent document processing to automate basic tasks and optimize the working time of your skilled workforce. This will help your workforce focus on strategic decision-making and promote the stability of profit margins in your organization. Your business can benefit from productivity gains, and this can even give you a competitive advantage in the long run by helping you keep your costs lower than competitors.
Inflation can adversely affect small businesses and start-ups already struggling to survive in competitive markets. You can protect your start-up from inflation by preparing ahead of time. It is advisable to invest your cash into high-return assets, cut down on unnecessary overheads, diversify your product range, and move towards automation to preserve the profit margins of your business. In the temporary times of inflation, you must not lose sight of your long-term business goals and focus on growth and expansion by adopting a proactive approach.