How small business owners can weather inflation and high interest rates

The latest MetLife & US Chamber of Commerce Small Business Index shows that small business inflation concerns have reached new heights as they prepare for an uncertain future. A survey found that 71% of small business owners believe the worst is still to come when it comes to inflation. With inflation keeping costs high and interest rates rising, smart business owners are asking themselves how they can weather the storm.

Here are three things small business owners can do now to identify the best path forward.

1. Review key business metrics regularly.

The best way to navigate difficult economic times is to know what is happening in your business today, not what was happening last quarter or last year.

Keeping your basic financial reports up to date will not only help you better understand changes in your business, but it will also prepare you to negotiate extensions and new funding with lenders and potential investors. .

Go beyond a clean set of historical financial data and compare plans (budgets and forecasts) to actual performance to see where your ideas were on target and where they might have been off target. Clarifying assumptions that didn’t work provides a great place to start when it comes to adapting your business plan to the current situation.

You can also identify leading indicators that help identify changes in customer and vendor behavior. Whether it’s the number of conversations it takes to get a “yes” from a client, or the time it takes a supplier to confirm her PO, you can do it to track information that helps you “see” upcoming changes. do as much as possible. Plenty of time to adjust course.

2. Evaluate all products for profit.

One of the easiest ways to weather high inflation, tight labor markets, and volatile supply chains is to ensure that every product or service you sell is profitable. If not, identify what you need to do to make it possible.

Calculate the average revenue and cost (unit economics) for all products, carts, projects, or customers to understand the average gross and net profit per unit. You can then compare individual products, services, or projects to that average to decide how to adapt your pricing or go-to-market strategy, or which products to leave out.

For example, one of my clients who resells merchandise moved from guaranteeing a fixed price for large clients to guaranteeing a fixed discount on the Manufacturer’s Suggested Retail Price (MSRP). . Margins remain stable.

3. Understand the impact of inflationary pressures.

Each business is affected differently by inflation, so a quick analysis of the following areas can help identify potential impacts.

• Unit economics: Ask yourself which products or services (unit economics) are most susceptible to inflation. How much will you be able to absorb costs, deliver products/services, and keep your customers happy before you need to raise prices?
• Your business funding: Do you have a variable rate loan agreement? Do you need to secure additional financing in the next 18-24 months?
• Your personal financial situation: Take a look at other personal obligations that may increase with inflation, such as credit card debt and variable rate mortgages. Prepare for a potential business slowdown and think about how your personal and business finances work together and are interdependent.

Taking one or more of these steps will not only make your business more resilient in difficult economic times, but it will also make you less dependent on external capital. Knowing the numbers and specific business challenges will help us navigate the uncertainty the economy may experience in the coming months.

And most importantly, becoming an expert in what’s working (and not working) in your business will help you stay agile and confident in every decision you make. about it.

About the author

Stephanie Sims

Founder, Financial Ability

Stephanie Sims is the Founder of Finance Ability, Member of the Chamber of Commerce’s Small Business Council, Capital Strategist, Startup Advisor, Fund your business without selling your soul.