Tips to offset rising business costs
Various factors contribute to the current cost of living crisis, and businesses are affected differently depending on the industry. The main driving forces behind the current rise in business costs include:
- Supply chain disruption increased costs for shipping and logistics, which is challenging for industries that rely on imports and exports.
- Increasingly unpredictable weather patterns resulted in natural disasters, causing shortages and price spikes.
- Finding and retaining skilled workers remains difficult, forcing the need to pay higher wages to retain staff.
- Rising interest rates make borrowing more expensive and harder to repay any debt.
- Suppliers, partners, or distributors could be seeking to increase their prices to cover their margins.
Many small businesses only carry enough cash to cover a month’s worth of expenses, so you’ll need to focus on activities that bring in money and make hard decisions on those that don’t.
Increase price and margin
If you’re able to raise your prices without impacting demand or the customer relationship, your problem of rising costs could be solved. Customers do understand the need to increase prices over time, though if you’re in a very price-sensitive industry, try it with non-core products and services first. Your competitors will be facing similar issues.
Reduce the cost of your raw materials, supplies, or services without sacrificing quality or service by bargaining with existing suppliers. Proactively check out suppliers who may have more competitive pricing or volume discounts. Technology costs are a good example, where they should be declining over time. Consider contracts to fix supply prices for a period of time.
Reduce the need for human intervention (which is usually expensive) by automating online payments, HR management, accounting platforms, inventory tracking, appointments, and reminders.
Buy in volume
Switch to bulk purchases if you have the cash reserves available, or it’s possible to store without spoiling and you get a decent discount.
Get paid early
Invoice as soon as you complete a job, or even better, get paid immediately with direct payment. If possible, collect progress payments as you go.
If viable, offering employees the opportunity to work from home (even part-time) could allow your business to reduce the space you need.
There are lots of reasons for going green, but it’s also financially beneficial. Start by turning off the lights and refraining from running machinery not in use. Reuse and recycle everything you can. While energy-efficient equipment and LED lighting can be a costly up-front investment, running such equipment costs less over time. Train staff. If everyone’s working towards the same sustainability goals, saving energy and reducing costs becomes easier.
Seek out industry discounts
You may get a cost break on insurance, office supplies, training and education, software, or travel as an industry association or chamber of commerce member. Visit your local Chamber of Commerce website to learn the perks of membership.
The most straightforward way to manage rising costs is to delete them. By reviewing what is mission critical, there could be several costs you’re able to remove (or significantly reduce).
Review any fixed service plans or subscriptions that you don’t need or can downgrade. Check if advertising is paying its way and beware of vanity advertising (you look good, but no extra sales are generated). Download your latest cash flow statement and go through each item line by line and decide to cut or reduce.
Shortening your opening hours can save labor, energy, and maintenance costs. Before going ahead, remember to analyze the impact on customer satisfaction, loyalty, and revenue.
Delete unprofitable products or services
With well-run profit centers, you’ll know which products and services cost you the most money and how much they bring, which makes trimming the fat easier.
Cutting back on staff is an option if it’s the only way to keep the doors open. Remember there are processes to follow. It should be a last resort.
Delay buying big-ticket items if they drain your cash reserves or require debt. You may get by for a time or think of a Plan B, such as repairing, renovating, or refurbishing.
Be tax efficient
Use a tax professional to identify claimable expenses, review your business structure, reign in costs, and minimize your tax liability.
The impact of the cost-of-living increase on businesses is significant and multi-faceted. If you have tight margins, as many small businesses do, any supplier price increase you face can be problematic. Possibly the viability of your business is at stake.
But when you know where your highest costs are, you can plan for further cost increases and have strategies in place to manage them.
- Collect any outstanding payments you’re owed, starting with the largest and working your way down.
- Work with your staff to identify how you can cut costs and become more efficient, and then strategize what methods will work best to find more cash.
- Learn what support is available through memberships and government assistance and hire professionals to help you streamline your business depending on complexity.
- Contact your banker to find out how to lower your finance costs.
For informational purposes only. There is NO WARRANTY, expressed or implied, for the accuracy of this information or its applicability to your financial situation. Please consult your financial and/or tax advisor.