The National Bureau of Statistics (NBS) recently released its inflation report for April 2022. It revealed that the country’s inflation rate rose to 16.82% from 15.92% recorded in the preceding month. In layman’s terms, this means that the purchasing power of the Naira has dropped.
Inflation, an economic term that describes the general increase in the prices of goods and services, affects small businesses in a number of ways. Here are some of the significant ways that SMEs are impacted by inflation:
1. Higher Production Costs
When there is a general increase in the prices of goods and services, business owners would have to struggle with higher costs of supplies, production materials, and other resources that they need to produce and sell their products or deliver their services.
2. Higher Prices
It is only normal for entrepreneurs to look to offset the rising costs of production. As a result, they consider raising the prices of their products and services to prevent losses.
3. Lower Profit Margins
With higher costs of operation often comes tighter profit margins. This makes it difficult for businesses to remain profitable in times of heightened inflation.
How Small Businesses Can Manage Inflation
1. Cutting Down On Non- Essentials
It is unwise to spend unnecessarily during periods of high inflation. It is advisable to reduce production costs as much as possible.
2. Focusing On Increasing Sales
As a business owner, you should seek ways to increase your cashflow. Adopt strategies that will entice your current customers to buy more or boost your marketing to target and acquire new customers so you can increase sales.
3. Tracking Expenses
Get yourself an easy-to-use accounting tool or management software/app that can help you monitor your expenses. This will allow you to have a more holistic assessment of your finance and business.
It is almost impossible for inflation to completely disappear, but by following macro-economic trends pertaining to your country, you’ll be able to adapt accordingly and make good business decisions.
