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Updated on November 20, 2023
In the current inflationary context, SMEs are facing many challenges. What are some strategies for coping?
Inflation is hurting SMEs. In addition to competition from web giants in online business, SMEs in all industries are facing labour shortages, resulting in higher wages, higher procurement costs and less flexibility from suppliers.
Are you an entrepreneur experiencing difficulties? Here are some tips to help you deal with these issues.
Analyze your data
Nothing is more important than analyzing your financial situation and your results based on the data collected. The more you know about your market and your situation, the better you can act and make the right decisions.
Here are the steps involved:
- Analyze your data over a three- to five-year period;
- Review changes in your contribution margin;
- For each product or service, calculate your costs, profit margin and breakeven point;
- Determine which products or services are profitable or unprofitable;
- Keep track of your fixed costs such as rent and insurance;
- Ask yourself what your competitors are doing: when do they increase their prices?
In short, take stock to understand what is working and what is not and react quickly.
Review your rates and offering
Some of your products or services are cash cows and others are black holes. Keep the ones that generate the most money. In addition, it is important to work in collaboration with:
- Your sales team: they are in the field and will undoubtedly have some interesting solutions to suggest.
- Your clients and suppliers: in retail, for example, you can implement discounting strategies or bigger batches.
Consider whether it would be appropriate to charge for additional services such as storage, delivery or return services, packaging or product customization.
Optimize operational performance
In-house work processes can consume time and energy and even cost you money. You need to optimize your processes to make them flow.
- If you’re in manufacturing, ask yourself how to reduce your factory downtime.
- Work on the quality of your service to limit rework and returns. This will help you maintain your margin.
- Invest in digitization. The initial cost may be high, but investing in new technologies will save you money in the long term and increase your business’s efficiency.
- Robotize your administrative processes
Manage human resources strategically
Salaries are not the only thing your organization can leverage. There are many variables that come into play and you have some power to implement or improve them.
- Limit inflationary wage increases. Other than salary, what other benefits can you offer your employees?
- Come up with creative ideas to keep your compensation competitive.
- Build a strong employer brand that will help retain your employees.
- Make sure you make employee onboarding a success.
- Integrate training programs into the company.
- Involve your employees in cost reduction improvement projects. They have ideas too.
Innovate
What you do today may not work in the future. It may be worthwhile to change your manufacturing formulas to reduce your input costs.
For example, create dedicated innovation teams to look at improving or changing services or products, formats, derivatives and replacement parts.
Think about ways to optimize the way you make products or deliver services. This can be done by incorporating technology, changing your work processes or outsourcing some costly activities to suppliers who have more expertise than you.
Improve procurement management
This is a part of your business that warrants close analysis and monitoring.
You can, for example, establish partnerships with your suppliers to see how you can do better business together.
Be careful to distinguish between sourcing and buying: sourcing means comparing suppliers’ offers and then requesting bids. Sometimes it’s best to choose not to sell certain items and keep only the most cost-effective ones. You need to build strong partnerships and look for alternative solutions.
Keep an eye on the market and learn about potential suppliers and partners.
Define a clear vision and strategy
What is your objective? Are you looking to cover cash flow? Fixed costs? Improve gross margin? By using data, you can adjust your strategies and generate revenue in a different way.
- Set clear goals and communicate them;
- Involve your employees in the solution;
- Measure improvement and celebrate success;
- Align compensation with gains;
- Have a contingency plan.
Prepare financial forecasts
If your company is experiencing difficulties or if you’re looking for shareholders or business partners, preparing a financial forecast for a 12 to 24 month period will allow you to demonstrate to them that the company is in fact viable, by implementing a very specific action plan.
The document must demonstrate that your plan is sound and reassure your current or future partners. The business outlook should be translated into a financial forecast. Don’t forget that financial partners often evaluate entrepreneurs their responsiveness.
- Reflect on the impact of the various measures;
- Determine short- and medium-term funding requirements;
- Analyze sensitive points and break-even points;
- Identify ratios;
- Identify internal and external risk factors;
- Establish the indicators to be followed in order to maximize the plan’s chances of success;
- Review the budget regularly.
To survive these inflation-driven changes, you need to adapt by reviewing your action plan. You need to update your forecasts to reflect current conditions, review your costing and look at your operational performance.
Inflation is not your fault, but you have the power to adapt. For some companies, this change can even become a competitive advantage. Don’t hesitate to consult an expert who can help you see things clearly.