Over the past couple of years, the rate at which prices of goods and services rise has been on a steady climb with inflation rate reaching over two decades high of 28.2 per cent in November 2023, according to data released by the National Bureau of Statistics (NBS).
The resultant effect had seen purchasing power of many Nigerians decline over the years. However, businesses are not left out of the effects of the rising inflation. Rising costs have one way or the other impacted businesses with some already packing up shop.
Small businesses face various challenges when dealing with rising inflation, as it can lead to increased costs for goods, services, and operational expenses. To be able to survive and navigate through periods of rising inflation, small business owners need to put in place some strategies to ensure that the business does not sink in the rising tide of inflation.
One of the very first things small business owners need to do in a period of rising inflation is to cut cost. At this time when prices are soaring, there is a need to conduct a thorough review of business expenses and identify areas where costs can be reduced without compromising quality or customer satisfaction.
This may include renegotiating contracts, cutting unnecessary expenses, or optimizing processes for efficiency. Next is to streamline operations to improve efficiency. This may involve investing in technology, training employees, or reorganizing workflows to maximize productivity and reduce waste.
Another area to look at is suppliers. If the business is reliant on other businesses, there is a need to negotiate with suppliers. Small business owners can engage in open communication with suppliers to negotiate better terms or discounts. Building strong relationships with suppliers can help navigate through tough economic times.
Where this fails, exploring alternative suppliers becomes an option to be looked into. Research and identify alternative suppliers who may offer better prices or terms. Diversifying supplier base can provide more flexibility and options during times of inflation.
Everyone knows that pricing is changing due to inflation, so, regularly reviewing pricing and adjusting prices when necessary is key to surviving during a fast rising inflation. While sudden or drastic price increases may deter customers, incremental adjustments may help cover rising costs over time.
Adjusting marketing strategies to emphasise value and highlight any cost-saving measures that have been implemented.
There is also need to communicate with customers transparently about price adjustments, and emphasize the quality and value of products or services.
Implement customer loyalty programs to retain existing customers as repeat business can be more cost-effective than acquiring new customers, especially during challenging economic times. Business owners can also explore opportunities to diversify to products or services that appeal to a broader market. Having multiple revenue streams can help cushion the impact of inflation in specific sectors.
Whilst financing remains a critical touch point for small businesses, it is important to always have flexible financing options. There is always the need to negotiate with financial institutions for flexible financing options, such as extended payment terms or lower interest rates. This can help manage cash flow and provide some relief during inflationary periods.
Aside these, efficient cash flow management is crucial during inflation, and having a clear understanding of financial position allows for better decision-making. There is also the need to stay informed about economic trends and anticipate potential challenges. Planning ahead and having contingency plans in place can help businesses adapt more effectively to changing economic conditions.
Similarly, leveraging technology to automate processes, reduce labour costs, and improve overall efficiency. Investing in technology can lead to long-term savings and increased competitiveness.
Surviving inflation requires a combination of proactive financial management, strategic planning, and adaptability. Small businesses that can navigate these challenges successfully may emerge stronger and more resilient in the long run.
