With ongoing supply chain issues and the Omicron variant taking our country by storm, a lot of uncertainty remains for 2022. One major uncertainty is inflation. Much of the current inflation is due to significant imbalances between supply and demand for goods and services. In 2021, we saw a surge in consumer demand and a reduced available workforce. This combined with strict Covid-19 restrictions, Canadians had less incentive to spend on services compared to goods. With the Omicron variant causing further restrictions, we may see a similar scenario unfold in early 2022.
What to Expect in 2022
The Bank of Canada has kept its target of 2% inflation with the hopes of it being achieved in the second half of 2022. As of November, Canada’s inflation rate held steady at 4.7% and is predicted to remain steady or to rise in the first half of 2022. According to surveys, 89% of Canadians are worried about inflation and the rising costs associated to goods and services. These results paint a picture of how Canadians feel going into 2022 and what businesses can expect moving forward. One question remains – as an SMB owner what can you do to manage inflation? Here are a few strategies that you can spring into action immediately.
Strategies to Manage Inflation
1. Adjust Your Pricing Strategy
Similarly to our previous blog which detailed hacks for improving cash flow, it’s important for your business to adjust its prices to account for increased costs brought on by the pandemic. If your business has been able to foster customer loyalty, a modest increase in prices won’t likely result in losing clients. If you’re worried, try focusing your attention on a specific customer segment that is less sensitive to price changes. In addition, research into what your competitors are doing. If they’re raising their prices, you should probably do the same. Be transparent with your clientele and communicate clearly why your prices have increased. In return, you will gain their fidelity and earn a good reputation.
2. Renegotiate With Suppliers
Review contracts with your suppliers and try to lock in long-term fixed-price deals. While it may be costly to do so at first, it will protect you from any further inflation hikes in the future. Most suppliers prefer an annual contract as it provides them with predictable cash flow. Make sure to plan ahead of time and lock in rates for goods that you know you will be needing in the future.
3. Cut Cost Where You Can
Today, you are more than likely experiencing an increase in cost of materials, inventory and employee wages. To cut down on non-essential business expenses, take a close look at your subscriptions or anything that you pay on a contractual basis. There may be unnecessary services, add-ons or features that you can downgrade, cancel or shop around for. For instance, have a look at your phone bill, Internet, equipment leases, insurance and advertisement expenses. Every dollar you save will strengthen your cash flow and as a result, protect your business from rising inflation.
4. Invest in Your Business
If you’re anticipating that inflation will keep rising, it may make sense for your business to invest in large purchases that you have been hesitating to make. This could include equipment, land or any other large asset that’s essential for your business. And if you have extra storage space, you should buy small supplies, inventory or materials in bulk. When doing so, suppliers might offer discounts which could save you money in the long run. If you have any money sitting in your bank account, you should put it to use before it loses value.
5. Government Grants & Loans
If you haven’t done so yet, take advantage of available government grants and Covid-19 relief incentive programs for small businesses. For further details, visit the following government of Canada webpage to see which incentives your business might be eligible for. OnDeck Canada is also currently offering a Personal and Proper Equipment loan to support Canadian businesses during the ongoing Covid-19 pandemic. With Omicron spreading quickly, we understand that it’s important for your business to operate safely, while helping protect against the further spread of infection. Visit us at OnDeck.ca to learn more about our loans and to find out if your business qualifies.
The Bottom Line
No one truly knows what will happen in 2022. The best thing you can do is to invest in yourself and to absorb as much knowledge as you can. Before using any of these strategies, you should seek out professional advice from a financial advisor or qualified CPA. In the end, you will have to form your own opinion about whether inflation will keep rising. By having an actionable plan to efficiently manage inflation today, you will be able to maintain the value of your business tomorrow.