Dr. David Phelps, author of Inflation: The Silent Retirement Killer describes today's inflationary environment as playing your favorite childhood game, and then someone comes in saying that all the rules have changed.
He explains, "We've had 40 years, from 1980 to 2020, where we've had disinflation and low interest rates, but then we turn the corner to face completely new rules. We have rapidly growing inflation now, and as a result, higher interest rates. This means we have to learn how to do things differently."
Your old strategies and how you achieve victory are completely different--in fact, if you play by the old rules, you're going to lose. It can be to change our paradigms--to change something we've understood for years. And that's precisely the situation we are in today.
"The problem is that what happens during an inflationary environment like we're facing now, the cost of doing business, the cost of borrowing money--it all goes up, and that means our profit margins go down," Phelps said.
Not only are there higher prices and labor issues, but rising interest rates are also putting the brakes on consumer spending. Less buying power reduces buying volume and frequency, slashing revenue--and this moves into the B2B space as well, with companies impacted by consumer spending reducing their spend on B2B products.
It's a big deal, but, if handled correctly and with the right resources--businesses can not only withstand these economic difficulties--they can thrive.
Here are some strategies that will help businesses withstand--and thrive--in spite of inflation and the recession.
Raise Your Prices the Right Way
It may seem like the easy way out to combat inflation, but your business can gain more from this strategy than you might think. Avoid turning off customers with dramatic across-the-board price increases. Instead, raise prices slowly in modest increments and only on the products that impact your margins the most.
Use creative ways to communicate how your services can benefit businesses in the long run, to help them understand your value--even at a raised rate--so they can justify the investment. For some companies, running a "last-chance" promotion will encourage customers to buy from you at your lower prices while notifying them about the price increases due to inflation.
Refine Your Business Operations
Go back to the drawing board to identify core services or products, focusing on those that provide the best ROI. Cut any products or services that aren't being used, and consider if there are ways your team can tighten up processes and increase efficiency.
Time is money, so the more efficient you can become, the more money you can save on operational costs. If you find that you have staff members that don't have a full plate--but you aren't willing to undergo layoffs (which should be avoided at all costs)--take lulls as an opportunity to upskill your staff. Set them up to train in areas of weakness and determine how they can best serve your company.
Revisit Your Finances
Despite rising costs, you can capitalize on the tools some financial solutions offer to incentivize spending, like credit card rewards and high-yield business savings accounts. And don't ignore alternative banking options.
The digital acceleration we've experienced over the last few years has brought innovative new banking options to the table, like neobanking
Neobanks, sometimes referred to as “challenger banks,” are fintech
(financial technology) firms that offer apps, software and other technologies to streamline mobile and online banking. These fintechs generally specialize in particular financial products, like checking and savings accounts. They also tend to be more nimble and transparent than their megabank counterparts, even though many of them partner with such institutions to insure their financial products.
While the overall economic conditions are volatile right now, American businesses have more tools at their disposal than ever to weather this unpredictable storm. Inflation and recession can be challenging for businesses big and small, but the right strategies, support, and resources can help them adapt, survive and thrive.
2023 can not win any beauty contests, but if we stick with what we know and take solid, conservative advice, we should do all right.
If you have any concerns as to how you are going to handle these turbulent times, our professionals at ASN are standing by ready to help. Just give us a call.