Long term strategies to beat rising costs
4min
As a business owner, you need to adapt to these changing conditions to manage the impacts. Consider the following strategies to prevent inflationary pressures from building in your business.
Option 1: Acceptance
The first option is to just accept costs are up and ride it out, continuing to operate and hoping the market improves with time. With this strategy, you might:
- Wait. Take a breath, and tighten your belt, even if it means generating less profit for a time. It's even possible to lose money for a period if you know the future is bright, and you have the cash reserves to ride it out.
- Raise your prices to maintain your profit margins. Most customers will absorb a price rise, understanding that you're matching inflation and the circumstances are outside your control
- Find a new market that is less price sensitive, such as a different customer type or a new geographic market that will pay a premium.
- Identify untapped customer groups with unmet needs. Once identified, adapt your products or services, and develop targeted marketing campaigns to reach these customers.
You could also take time to develop or sell new products and services with better margins.
Option 2: Increase cash reserves
Cash reserves give you extra time to adjust your business to the new normal of higher inflationary pressures.
Streamline by selling anything you no longer need, such as excess technology, office equipment and furniture, machinery, plants, and vehicles. Look closely at the business assets on your balance sheet to see what you don't need and convert as much as you can to cash without impacting your operation.
Sell intangible assets
Possibly you have non-core intellectual property assets such as patents or trademarks which you could sell. Take care the sale of these assets doesn't impact the long-term future of your business.
Reduce drawings
Check the amount of money you withdraw from the business for personal use. Doing so will effectively increase the cash available to pay suppliers, service debt, or invest in growth opportunities.
Option 3: Restructure
Restructuring involves significant changes to the business. Look at what's working well and identify what you can re-invent to operate more efficiently. Carefully consider the long-term impact of your decisions on the whole business.
Review profitability
Analyse different aspects of the business, such as locations, products, and people, to identify those which aren't profitable. By eliminating them, you can focus on the business areas that are making a profit.
Go back to core business
Often businesses over time diversify and add products and services which originally weren't part of the business. By reducing these activities, you can more adequately fund and optimise the areas that generate the most revenue and profit.
Collaborate
Partner with businesses that offer complementary products or services. By sharing costs, you can both reduce operating expenses and improve profitability. This strategy can also lead to new business opportunities and increase market share.
Contract out
Outsourcing certain services or functions to third-party providers, such as marketing, payroll, or accounting, could save you money if these functions don't justify a full-time position or resource. You avoid the costs of hiring and training additional staff and gain access to specialised expertise and technology.
Reinvent
Re-structure the areas of your business that are struggling. Take a close look at what can be salvaged and then act like a new start-up to build a new, stronger business on the foundations of the old one. If you have several locations, branches, or offices it could be possible to split them off and sell them as a going concern, or close and liquidise the assets.
Option 4: Trade out of trouble
Shift your focus to driving sales to widen your operating budget. Tap into new markets and reach new customers. This could involve developing targeted marketing campaigns, partnering with local businesses, or attending trade shows in these regions.
Limit credit
To manage cashflow and reduce the risk of bad debt, limit the amount of credit you extend. This could involve offering discounts for using cash or requiring payment in advance for large orders. Say no to risky work.
Sell
It could be the perfect time to sell your business and exit. If you're thinking about selling your business, it's crucial to first work through the details that will help you maximize your price and make your business more attractive to potential buyers.
To reduce the risks involved in selling a business, consider employing experts like a business broker to help guide you through the steps. They will help prepare the business to sell, put the business on the market within their channels, through to completion of the transaction and handover.
Renegotiate
If inflation is squeezing your margins, it could be possible to either ask suppliers to lock in prices for a period or find new sources of the ingredients needed to run your business. You may need to commit to higher volumes or regular payments. But it's worth the effort.
Summary
Inflation can be hard to adjust to as prices increase across the board, but there are steps you can take to minimise the impact. No matter which combination of approaches you adopt, taking proactive steps to future-proof your business will help you weather the inflation storm and position yourself for long-term success.
Talk to your accountant, lawyer, banker, business partner, family, or other business owners you rely on to discuss the solutions that fit your business best.
Next steps
- Calculate how long you can withstand keeping things as they are, to determine any looming financial hardship. Make a few small changes immediately, rather than waiting.
- Determine which strategy or combination of methods would work best for your business to return to profitability. Remember to balance effectiveness with impact on your customer.
- Think about incremental changes you could make to widen your profit margin.
- Contact your banker and enquire online, visit a branch, or call on 0800 272 222 for more ideas on how to future-proof your business against inflation.
