INFLATION - you hear this word everywhere you go lately - well, inflation and increases in interest rates- Let's talk about how to address inflation when it comes to your business.
1. Raise your prices - As the cost of living goes up across the board (i.e inflation) your business services and goods supplied are not an exception.
Of course, if you are doing a percentage mark-up on goods sold you are already dealing with inflation. Goods cost more so you are using that "current" base to calculate your markup. If you are providing a service this may be more tricky. A percentage increase to go along with inflation could be a good start. Communicate early and be transparent with your clients - this relates to point 4.
2. Promote and focus on high-profit margin services: Identify those services that can help you make more bottom-line dollars. Doing this will help address our tip #3.
3. Create and build an emergency fund for your business: Set up a pre-authorized debit or transfer between accounts so you can build an emergency fund. The amount is not critical -what is critical is creating the habit.
4. Review your contracts: Make sure that you clearly delineate how change orders and changes in scope are to be billed to your client. This will help avoid awkward conversations with your clients and will protect your business from eating additional project costs.
5. Create a budget: And/or update it. Compare how your current expenses are measuring up against your budget. Focus on proportions (percentages) when examining if an expense category is TOO MUCH.
6. We saved the best for last. A practical tip that you can do right now.
Grab an expense line item (for instance Rent) and divide it by the Total Sales. Record the percentage Repeat across your expense item list. By doing this, you will see if a particular expense represents 1% of your total sales or 35%. Arrange expenses by percentage and ask yourself if you are surprised by certain percentages. Then, you can start looking at whether these expenses are necessary and if trimmed can you still operate without affecting (affecting ever so slightly) your business efficiency and customer service.
If you are worried about inflation and need to partner with an accounting team that will support you contact us