It’s been a rough few years for many small business owners, particularly in Victoria.
First, there were all the restrictions and stay-at-home orders that led to Melbourne spending more time under COVID-19 lockdowns than any other city in the world. These lockdowns hit revenue hard, especially for those in the hospitality and retail sectors.
Then, just when things were looking up and the Victorian economy was roaring back to life, we’ve been confronted with a new challenge: rising inflation.
The Australian Bureau of Statistics consumer price index – which measures the average change in consumer prices over time – jumped by 2.1% over the March quarter and 5.1% annually. That’s the fastest quarterly and annual increase in two decades.
And when prices rise, it doesn’t just affect consumers. Many small business owners also find it harder to balance their books, as they are hesitant to raise prices to reflect growing inflation pressures.
Take the recent ABS Business Conditions and Sentiments survey. This found that over the three months to April, 57% of businesses had experienced increases in the cost of doing business. For those businesses, only 6% had fully passed on the increases to customers, with 52% fully absorbing the costs and 42% partially absorbing them.
How does inflation impact businesses?
Inflation poses three big problems for Australian business owners.
Firstly, rising inflation has weakened consumer confidence, particularly among those with a home loan. This makes consumers less likely to spend, which might affect your sales.
Secondly, inflation has reduced the purchasing power of many businesses, as it’s become more expensive to buy supplies.
Thirdly, some staff are pushing for pay rises to cope with higher living costs. Raising your labour costs would hit your bottom line – but with the jobless rate close to a 50-year low, you might have to pay up if you want to attract and retain good staff.
4 ways to protect your small business from inflation
So how can your business protect itself from these risks?
Here are four ways:
1. Boost your productivity
A great way of absorbing increased labour costs – without impacting your profits – is to do more with less. So look for ways to improve your processes, whether that’s automating tasks, investing in new technology or finding new ways to work faster and smarter. Thankfully, as part of the 2022-23 budget, the federal government announced a tax boost to support small businesses’ investment in digital technology and training.
2. Improve your accounts receivable
It’s always a good idea for small businesses to keep a close eye on their cash flow. But during times of high inflation, it’s critical. While we’re all feeling the pinch, late payments from your clients can cause serious cashflow problems – made worse by the fact the money you eventually get will be worth less than when you delivered your goods or services.
3. Consider a business loan
If your company is getting hit hard by inflation, a business loan can ease cash flow fluctuations, tiding you over until conditions improve. However, crunch the numbers before taking out any commercial finance to make sure you can meet all debt obligations if rates continue to rise. A good finance broker can help with this.
4. Change your procurement policies
Rising fuel prices are pushing up the cost of transportation. One way to protect yourself is to change your inventory or switch to more local suppliers.
Need a business loan or asset finance? NMC Finance is an experienced commercial finance broker and can help. Contact Nathan Coad on 0498 766 639 or email@example.com to find out more.