How SMEs can reduce the effects of inflation

Many businesses in Australia are feeling increased pressure as we move into a more inflationary cycle. For the first time in more than a decade, the Reserve Bank of Australia has increased interest rates. For many SMEs, the increase in inflation could not have come at a worse time having weathered the pandemic while trying to get business back on track. With mounting costs and staff shortages companies are feeling the struggle.

If you’re a small business that has a fixed term agreement that was made several years ago it might be beneficial to renegotiate your contract. You will need to check the legal aspects of the contract before you renegotiate, but it might be what saves your business in the long run by allowing you to pay staff and invoices.

Consider alternate pricing, are you able to pass on part of the inflationary price rise onto your customer? There are a number of different strategies you can use. You can increase the price gradually and frequently which gives the customer time to adjust, or you can increase quarterly rather than annually to allow more flexibility.

It is important for SMEs to consider wage increases, as wages can have a huge impact on small businesses. Besides a wage increase, there are some other alternate ways to keep staff. Workplaces are moving towards providing an environment where staff feel well cared for, have flexibility, better life-work balance, opportunity for career advancement and enjoyment. 

Another way for SMEs to increase cash flow is to consider upselling and cross-selling products to increase sales throughout their customer base. Identify or introduce products to upsell which will increase future job scope.   

The increase of inflation is going to be difficult for many Australian SMEs, but by reassessing your strategy and being prepared you can put your business in a stronger position to cope with the rise in inflation.

Contact us today on 1300 4 MORRIS and talk to one of our finance specialists to discuss how we can help your business.