Rose Muthoni @rosemuthoniN
The prevailing dry spell and ever rising fuel costs have pushed inflation up over the last six months, easing by 0.37 per cent to stand at 4.46 per cent. Does inflation affect small businesses?
Yes it does. While large businesses have the financial muscles to sail through inflation, small ones are at a disadvantage. Small businesses are generally in a much weaker position to adjust prices when inflation kicks in. Many of them are already weakened by the prolonged electioneering and are therefore, hesitant to raise prices.
But there a few things that small and medium-sized enterprises (SMEs) can do beforehand to cushion them from high cost of living. Inflation is pretty predictable.
Whenever you see fuel and food costs rising, then you know high inflation is just around the corner. When they rear their ugly heads, it is time to take action.
Become aggressive with frequent small price increases
Instead of increasing prices just when the cost of living is at its worst, do it gradually. Increase prices by small margins over a period of time. Customers are more willing to accept smaller price increases. Why risk running your SME to the ground with huge price increases, especially if you do not offer essential goods and services?
Cash reserves can serve as a buffer, as costs often increase faster than the entrepreneur can raise prices. “Cash is King,” even during inflation, so it is important to build cash reserves to buy time until you are able to pass along higher prices to your customers.
Don’t be the overly too good business that lets customers manage their cash flow challenges at the expense of your SME. Debt is your enemy during times of high inflation.
When you ‘smell’ inflation, stock up on inventory before your suppliers hike up the prices. But do not forget to protect your cash reserves even as you stock up.
If the rains do not fall soon and if fuel prices do not let up either, then you need to prepare for leaner times ahead. But with these tips, you will be home and dry.