Just like in business, the economy experiences ups and downs.
Sometimes prices stay the same for years while at other points it feels like the price of coffee increases by the day!
When the general level of the price of goods increases over many months, you get inflation.
Inflation is a common concern for small businesses as it can lead to rising costs and reduced purchasing power.
This is especially so for sole traders who often have their personal assets tied up in their business.
While it may seem scary and beyond your control, there is plenty sole traders can do to reduce the impact of inflation.
Here are 6 tips to inflation-proof your sole trader business.
1. Increase your prices
While it may seem counterintuitive, one thing sole traders can do is adjust their prices to keep up with inflation.
When inflation takes hold in the economy, nearly everything can be affected. The cost of your suppliers and vendors could creep up and impact your bottom line.
If you don’t pass these cost increases onto the customer, it’s your business that will suffer as a result.
Inflation is like a tide that lifts all boats. If you don’t rise with it, you will be left underwater drowning in a sea of rising expenses.
However, it’s crucial to consider how these price increases will affect the competitive landscape.
By increasing the cost of your product or service you may reduce your customer’s willingness to buy.
It’s all about finding that equilibrium. That bowl of porridge that you, your supply chain, and your customers all agree is jussssttt right.
The principle of finding a fair price and the value of your product or service does not change because of the state of the economy.
Rather, the state of the economy just changes what that value is.
2. Negotiate with your suppliers
Now comes the part where you discuss with your suppliers about what you agree is a fair price.
Nothing is set in stone. Negotiate with your suppliers to reduce costs and avoid price increases.
This can involve seeking out new suppliers, renegotiating existing contracts and looking for discounts on bulk orders.
While you may be skilled at what you do, being in business is a separate art.
Your ability to communicate and persuade effectively could be the difference between having to raise prices or keeping it the same.
Consider this article from the Harvard Business Review that helps you manage your – and your counterpart’s – emotions.
3. Cut expenses
Cutting down on expenses is one of the best ways for small businesses to combat inflation.
Reduce costs by cutting unnecessary expenses, such as reducing energy consumption, implementing more efficient processes, and outsourcing non-essential tasks.
Look at your monthly service agreements to see if you can cut back on any.
Are you paying for co-working spaces that you don’t use anymore? You can cut down on that cost if you are.
There will always be subscriptions you cannot afford to cancel. Again, you can negotiate the price with your vendor or find a cheaper alternative.
4. Be more productive
Small businesses can boost productivity by improving processes and procedures and investing in training for employees.
This can help reduce costs and make the business more competitive.
Leveraging technology to automate repetitive tasks and processes is another way to combat inflation. There are many apps that can help you manage your bookkeeping, customer management, and marketing.
Using these kinds of technology will allow you to achieve more with less money, unleashing more time for you to spend on other things that generate more sales.
5. Diversify your offering
Small businesses can consider diversifying their product or service offerings to offset the impact of inflation.
If your business only offers a narrow set of products or services and inflation impacts your ability to meet your sales targets, your sole trader business may be in trouble.
Instead, consider broadening your offering to spread out the risk of inflation across a range of products.
This can involve expanding into new markets, developing new products or services, or offering additional value-added services to existing customers.
6. Consider getting protected from risks
Sole traders often face several risks that threaten to derail a business regardless of the state of the economy.
Given that there is no legal distinction between a sole trader and their business, these risks could affect their personal finances as well.
With the added pressure of inflation, your business may not recover if you are not protected from these risks.
While some risks you can mitigate yourself, others you cannot remove completely.
This is where sole trader insurance can provide protection. Insurance for sole traders can offer a crucial safeguard against the financial impact of a claim against your business.
One of the most popular types of sole trader cover is Public Liability insurance.
It is designed to cover sole traders from third party claims of injury or property damage as a result of your negligent business activities.
To learn more jump online to Public Liability Australia to compare quotes today.
The bottom line
In the words of Ronald Reagan, inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.
But with a bit of strategy and business sense, sole traders can navigate this formidable opponent.
Hopefully by implementing these tips, sole traders can remain competitive, maintain financial stability, and continue to grow despite the challenges of inflation.
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.© 2023 BizCover Pty Limited, Public Liability Australia is a business name of BizCover Pty Ltd (ABN 68 127 707 975; AFSL 501769)