How can small businesses adapt in an economy under pressure?

0

As they say, “When they give you lemons, make lemonade.” But what should a business do when it’s pressed in today’s economy?

The U.S. economy is facing sky-high inflation and businesses are often presented with two options: raise prices to match rising costs – which has a bigger impact on the consumer – or cut corporate margins internally. to maintain market prices for their customers. Neither of these two options is ideal in times of economic uncertainty.

In times of inflation, consumers are not just in a rush for your product, but for many products and services. This makes the decision to raise your price the ultimate test of your customer base. Will they stay or will they go? Is the value proposition of your product or service enough to withstand this sticker shock?

Alternatively, given this risk, you determine that you don’t want to put pressure on your customer, but instead consider cutting margins to help sustain the business. Rising labor costs, not only within your own business, but also from any third parties you already rely on, are and can continue to squeeze your margins. So you slowly start to shrink your safety net to guard against further inflation. Then you see a decline in discretionary consumer spending, which many companies are already facing.

Faced with these dilemmas, the answer to this question of adapting businesses to the current climate seems to be that there are no easy answers. But companies still need to act.

Case in part: For the past few days, we have been seeing companies linked to consumer spending such as Bandaged, the major commodity processing company, is laying off 14% of its workforce as it prepares for future corporate mismanagement. They are not the first nor will they be the last. Other big tech giants such as Apple and Amazon have already announced hiring freezes and more have come this week as Meta, Facebook parent company, licensees 11,000.

Like it or not, inflation is here to stay, for now. How long? No one knows, but what we do know is that staying away is not what a company should do; rather, you should have an action plan on how to not only sustain, but also get out of this challenge.

One of the biggest mistakes I’ve seen in the COVID-19 era of business is the rapid increase in business spending to supplement rising consumer spending. While many were overpricing and spending or hiring like crazy, my business was bracing for the downturn and automating to handle changes back and forth.

Each company presents their own unique moves available at the moment, but ultimately there are a few basic concepts to consider:

Workflow optimization

One of the main reasons companies are hiring so quickly is that they can’t outpace rapid consumer demand. For example, more sales means more customer service, right? Not necessarily. Companies should always try to streamline processes to determine when they can remove the need for an employee. Why are your customer service reps constantly answering the same question? Creating internal and customer-facing resource guides is a surefire way to optimize the time your employees spend handling support tickets and reduce the need for customers to contact them in the first place. Philadelphia tech company Technologies Guru is an example of a solution for quickly scaling your team’s internal resources.

Always audit the customer experience. Really, this is true for every area of ​​your business. What are the tasks performed by your employees that can be replaced by automation or better tools? resources such as Retool and Zapier proven to speed up tasks so your employees can focus on other challenges. Stop doing the same thing manually over and over again and seek to streamline where possible.

Expenditure Audit

Nothing is a quick and easy fix. Don’t sign up for every new piece of software thinking it’s your optimization solution. It is essential to periodically audit your company’s expenses. Think it’s hard to keep track of all those streaming services you personally use and get billed automatically? Well, when you’re spending millions of dollars a year on a business, it becomes much harder to isolate the expenses. Who uses what and why can be a needle in a haystack.

Having an audit of your spend not only ensures that you are getting the right return on investment, but can also open up conversations with your employees to understand and audit theirs within the company. I can successfully give raises to my employees as their ability to perform more difficult tasks increases. But if someone is stuck performing tasks that don’t yield a higher ROI or are manual tasks that require little or no effort, there’s no justification for pay raises. . As you grow, your employees should grow with it.

Debt Optimization

COVID has taught us, from a business perspective, that companies weren’t prepared for a big downside. It’s critical to understand what happens if you see a 10%, 20%, or more drop in revenue for your business. How long can you operate if your income drops?

Once you understand what your model looks like, you can start building your options. For me, it doesn’t matter if you want to raise funds or not – you should always look at capital options, which include, but are not limited to:

  • Business line of credit
  • SBA funding
  • HELOC
  • Business partnerships

(Disclaimer: I am not a financial advisor and this is not financial advice.)

Inventory Forecast

If you sell consumer products, another COVID era learning from the mistakes of other businesses is overordering. The supply chain has caused tons of panic in the retail sector. And rather than prepare for a possible drop, many retailers over-ordered as if the money would keep flowing. This fall shopping season, retailers are faced with an insane amount of inventory. The Washington Post reports that stores are sitting on a record $732 billion in merchandise and consumers aren’t interested. Hmm…I wonder why.

As I mentioned above, by focusing on ROI, you can look at your model and understand what it would be like to adjust inventory forecasts to reflect better ROI. Sure, your margins may be better if you store everything, but if you’re able to deliver and your margin drops 10%, you’re now reducing risk and allowing your usable cash to take you further.

Partner relationships

Often one of the most overlooked strategies in any business is to improve relationships with the partners you have. When I do business with another company, I always treat others as I would like to be treated. And no, I’m not talking about jokes here. What if you had to manage your business relationships as if you were always in the best interest of the other party?

By doing a simple analysis of your own business and determining the main challenges and strengths, then doing the same for your business partners, you will soon learn how you can creatively solve everyone’s problems. Conversations no longer become negotiations but rather become collaboration. Instead of leaving you with a vague statement like another self-help book, let me break down a specific example:

During COVID, at my own business, we knew our partners were facing big challenges. Employee shortages were creating supply chain issues for warehouses. They were unable to ship and even store the excess inventory they needed to meet all the demand. By doing our own internal strengths/weaknesses analysis, we knew we had a lot of excess space, but we knew that what went up had to go down. Predicting inventory forecasts could get tricky once the free money period ends in the US (i.e. stimulus checks, child tax credit, etc.). So what did we do?

Already in net terms but knowing that we were facing consumers who wanted everything they ordered today, yesterday we had an idea. We tested consignment inventory and offered our top suppliers only the space they needed for excess inventory. In return, we were able to inventory it as our own and increase our catalog’s ability to offer same-day fulfillment on more products. Even better, we maintained our net terms structure that we already had in place, but only on what we sold. We increased our yield while reducing the risks of our inventory forecasting plan while solving the challenges of our trading partner. A win-win.

###

I’d love to talk with other business owners about creative problem solving in today’s economy. Use this form to submit questions related to this piece or your credentials if you also have advice to offer other business owners. If we get enough responses, Technical.ly will help us host a virtual event to meet and chat. You can also join the active community of Technical.ly Soft and start asking questions now as I have done before. Hopefully, talk soon!

-30-

Share.

Comments are closed.