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Raging inflation has been one of the big stories of 2022. What started in 2021 has continued throughout this year, with new inflation-causing factors seeming to pop up as soon as others are dealt with.
Now, as the year comes to an end, we are beginning to truly see the consequences inflation has had on our lives. With data courtesy of Small Business Loans Australia, we’re going to discuss these consequences.
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The data shows that for business owners, the impact is as stark as it gets. When running a business, you need to rely on budgets you set at the beginning of each financial year. Those budgets are by necessity flexible. However, we don’t usually deal with this level of consistent inflation, and our budgets have been decimated.
How do you continue covering your costs the longer this inflation crisis goes on? Here are some of the things we have learned about how businesses are struggling and what they’re doing to survive.
Where Are Costs Highest?
Each business has industry-specific expenses. However, when identifying the costs they struggle with the most, business owners pointed to supplier costs more than anything other than fuel. This is understandable, considering that suppliers are also struggling with inflation, thereby having to raise prices on stock themselves.
While some businesses require the use of far more fuel than other businesses, the high price of gas is affecting every business. The most basic businesses selling goods require gas to make deliveries. So as not to make delivery unaffordable to customers, businesses have needed to take on the extra costs.
Another major expense that most business owners have seen skyrocket is labor. As inflation has risen, so have incomes. Staff cannot live on the same salaries as they earned a year ago. This includes the business owners themselves, who have needed to increase the salary they pay themselves.
Finally, rent is another significant expense for all kinds of business owners. Rent was skyrocketing even before inflation hit its peaks and its incline has now gotten steeper. Some landlords have raised rent opportunistically, taking advantage of the affordable housing crisis. Others are simply trying to keep up with their own expenses.
How are businesses offsetting these higher expenses? Not all of them are. Many businesses are struggling to cope with losses while others are not seeing the profits they expected. But what about those businesses that cannot afford to keep running unless they find the extra money?
Should You Take out a Small Business Loan to Cope with Inflation?
Most small business owners want to avoid loans as much as possible. Being able to start a business without taking out a loan in the first place is the ideal scenario. However, taking a loan to start a business is still common practice and most business owners work repayments into their budgets.
Is it wise to take out a small business loan to take care of expenses when a business is already up and running? Again, avoiding any extra debt is always ideal. But if you have no other means of meeting expenses, especially during an inflation crisis, a loan can be a solution that keeps your business running.
In the Small Business Loans Australia survey, more than 50% of respondents said they would consider taking a loan to keep their business running. Roughly 28% would take out a loan greater than AU$50,000 (US$33,560). In other words, many business owners are recognizing that a sizable loan may just be their best hope.
But a loan cannot magically fix a business’s problems. While it will temporarily help manage expenses, loan payments become yet another expense. If the business cannot lower expenses where possible or significantly raise their income, it is a short-term solution at best.
Here are some of the other ways business owners consider managing expenses.
Consider Abandoning the Office for the Duration of the Inflation Crisis
Rent is one of the major expenses business owners listed as causing them trouble. If your business keeps stock or requires an in-person store, you’re going to have to continue paying rent. However, you could consider abandoning the office where you conduct administration and carry out meetings.
The pandemic was a great opportunity to test how well remote working could function in businesses of all sizes. The results were mixed. Many people benefited from remote working, but some businesses saw productivity drop and struggled to maintain their workplace culture. This is why so many businesses had their employees come back to the office, at least on a hybrid basis.
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Nonetheless, while it may not be ideal, it is clear that remote working is a realistic solution. Unless you truly need your staff to meet in person (or require them to work with equipment at the office), consider abandoning the office altogether. Dropping rent from your expenses will give you some leeway, helping offset high inflation in other areas.
Cut Your Workforce
Firing people should be at the bottom of your ideal list of ways to lower expenses. However, the sad reality is that your company may not survive unless you cut your workforce. Staff who are not providing that much value and staff who are underperforming are making it hard for your business to keep running.
Be very careful when considering this line of action, however. As mentioned, it should be a last resort and may not always help. If you do have to replace a staff member, you might actually have to offer a higher salary to attract candidates.
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There are no easy answers for business owners struggling with high expenses due to inflation. The potential solutions offer limited and short-term help. Nonetheless, seeing this difficult period through may be just what you need to start profiting again in the future.
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