JoAnn Laing's Blog - All About Small Business

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All About Small Business
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Preparing For Inflation

Tue, 07/06/2021 - 17:15

We could see high inflation* (when the cost of goods and services increases rapidly) in late 2021 and beyond.  It would befit the small business owner to be prepared. 

Let’s look at how inflation can affect your business and what you can do to contend with it.

Evaluate Revenue Streams – Ideally do this before inflation actually occurs.  If your offerings are discretionary or if it is unlikely that you will be able to compete on price during a time of inflation, your business model may be in serious jeopardy.  Reconfigure your revenue forecast to accommodate inflationary pressures and make necessary adjustments in advance of rising prices.

Borrow Now, if you have to – As interest rate are expected to rise.  Begin by securing an operating line of credit at today’s rates to buffer the impact of cyclical lending needs later.  Also, consider borrowing now for capital that will result in a reduced cost structure and/or more secure revenue streams.  

Ask for a fixed-rate loan (instead of an adjustable-rate loan) so your interest rate stays the same regardless of economic conditions.  The larger and longer the loan period, such as for a mortgage, the more important it is to have a fixed-rate loan.

If you have a variable rate loan, they are going to renew at much higher rates during times of inflation; pay these loans down as soon as possible. 

Wages – It is not feasible to lock in your employees’ wages; they are going to, at a minimum, demand cost-of-living increases.  Plan for wage increases.  Also, consider hiring interns and freelancers who you can get at a fixed rate and do not have to pay benefits to.

Inventory – One way to fight an anticipated inflationary scenario is to lock in prices early.  You can do this either through options/futures contracts or simply by signing long-term contracts with suppliers. 

If you cannot lock in prices, consider stocking up on inventory.  Purchasing goods before price increases could put you in a much better competitive position than your competitors.  But, don’t risk cash reserves just to buy inventory.

Finally, renegotiate with your suppliers and ask suppliers for discounts.

Efficiency And Productivity – Spend time improving your processes productivity.  Look for areas of waste; then spend time and effort implementing ways work can be done more efficiently.  Conduct timely technology and services audits.

Reduce Other Costs – Consider relocating to a smaller, less expensive working environment.  If you rent, lock in the amount you pay.  Eliminate finance charges by paying on time.  And, prepare for the possibility of workforce reductions should the economy enter a period of prolonged inflation.

Prices – There are going to be some costs that you can’t lock in ahead of time, so you may be forced to raise the prices of your products or services to offset higher expenses.  However, smaller businesses are reluctant to raise prices when they already see business tailing off due to inflation and increasing the risk customer alienation.  A couple of ways to raise prices include: giving your customers some warning, saying and/or posting we need to raise prices starting on this future date to continue delivering the top-notch offerings that you’re grown accustomed to; and consider frequent small price increases rather than one or two big price increases. 

Customer Loyalty – Reprioritize your customer loyalty initiatives.  To prevent your customer base from moving to lower priced alternatives, secure your customer base by creating value added incentives to encourage them to stay with you.

Receivables – To minimize customers taking advantage of you by not paying on time and then you having to bridge cash shortfalls, reduce collection issues by tighten up payment terms, possibly instituting penalties for late payments.  Stay disciplined in collecting payments.

Investing Funds – With inflation and the value of the US dollar decreasing, the purchasing power of your cash will be dramatically lower after just a few years.  Any funds that you don’t expect to use in the near-term should be invested in assets that protect you against inflation; talk to your financial advisor about possibly investing in treasury inflation-protected securities (TIPS), mutual funds, and ETFs.

In summary, inflation can be a nightmare for your business if you are not prepared.  However, if you prepare before we start seeing higher prices, you can mitigate the effects of inflation or even benefit from it.

* Inflation is a period in which the overall prices of everyday goods and services start to rise.  Business cost of materials and labor rise squeezing profits.  Rising costs may or may not be able to be passed on to customers depending on the price elasticity of demand for of your offerings.  When inflation causes costs to rise, often interest rates will spike.  Inflationary pressures cause customers to try to delay payments in order to be able to pay with “cheaper dollars” so business cash flow suffers.

Satisfy Customers and Generate Sales

Sat, 06/05/2021 - 16:24

People, like butterflies, are emerging from the pandemic lockdowns.

During the pandemic many people changed their living habits, became isolated, more concerned about hygiene, and purchased more things online, and perhaps gained weight.

Besides purchasing more items online, they also broke other shopping habits.  Fortunately for small businesses new ones are developing.  Most immediately, there is going to be a period when buyers will experiment with new buying channels to fit their emerging lives.

Smart small businesses leaders will see this dynamic as an unparalleled opportunity to add new customers and welcome back old ones.

As early surveys show, consumers and businesses are eager to buy.  They have pent up demand and also new fashion, food, and hygiene needs.  Small businesses need to step-up their game in their local and online stores, making both more user friendly as shoppers seek new venues.

Consumers and B2B buyers have also learned to look for different ways to satisfy their needs.  Thanks to various aid programs, they have more money to spend and reasons to do so.  And they are not limited to what, where and how they previously bought.

Fashions for the office have changed, requiring wardrobe additions.  Grooming has become more demanding as has the foods people eat which are changing.

In the new era of socializing, people want to: look well turned out yet comfortable; order the best food and beverages for these activities; update their abodes to meet new lifestyle and for others who come visiting; and in general lead different lives.

Small businesses need to spruce up their local and online stores to draw the attention of these new and former shoppers.  Once in their stores proprietors need to concentrate on four area to compete in this new economy: curation, personalization, immediacy and now.  Plus beyond sight and sound, local businesses can add to their inside edge by being able to appeal to the senses of smell, touch, and taste.    

Let’s look at each area and consider the added sense advantages.

Curation – yes, curation can be done online; but in person it can be so much better.  Make it easy for your former and new customers to shop.  Put together kits of your products such as complete outfits, ingredients and recipes for meals along with decorations and beverages (perhaps provided in partnership with other stores), and essentials for body/home/transport make-overs.  By customers not only seeing your offerings with accompanying sound, they can more fully experience them with smelling, touching and perhaps tasting.

Personalization – of course, personalization can be done online; but by seeing the responses of your customer you can immediately refine and sharpen your personalization while adding to your knowledge bank their likes and dislikes.  Remembering and using names is important, as are colors and preferences.  Providing samples of products to try can lead to greater sales.

Immediacy – a light, very brief touch on the shoulder or elbow can provide familiarity without being too intrusive.  After months of isolation, people crave contact of friends and family.  A friendly, but not overly friendly, shop keeper who smiles and adds just the right touch can become a more trusted source of products and services.

Okay, you might think this might be creepy; but consider the success of airline attendants in 1st or premium class who make their passengers feel at ease with these same gestures.

Now – online can provide next day and often delivery in a few hours…for a price.  Stores can do better by having the products available now for an outfit to wear, a meal to prepare, a personal or home project to complete that day.  Many people put off activities until they are pushed for time; local stores can meet that last minute challenge.

Above all, view this period as one of opportunity.  Be smart and draw the consumer and businesses to your local and online stores to gain long-time customers and greater sales.

Is Your Supply Chain Causing Product Availability Problems?

Sun, 05/09/2021 - 17:58

Small businesses power themselves to profitability by superior service and immediate gratification that give them the edge over bigger competitors.  Not meeting product availability is rated one of the highest causes of customer defection, according to experts.

Yet, forty-four percent of small businesses reported temporary shortages or other supplychain problems in March, according to a recent survey highlighted in The Wall Street Journal.

You know how critical it is to get customers what they want, when they want it.  As a business owner or manager, you need to accomplish this task in the lowest cost, most efficient way possible, without sacrificing on quality.  That is why supply chain management is critical to the success of your business.  Yet two-thirds of small business owners and managers do not have full visibility into their supply chains, which is how you get your parts and products from point to point.

When building your supply chain consider:

  • Supplier relationships – search for suppliers that are cost-efficient, reliable (have product available when you want it), and easy to work with; monitor their performance; and build a partnership with them.
  • Ethics – before forming a partnership with your suppliers talk about ethics, human rights, sustainability and other issues that are important to you, your employees, and company.  Make sure you and your supplier align; this positioning can help to strengthen the relationship and help to set up a long-lasting partnership.
  • Risk management – proactively manage supply chain risk, be ready when supplier disruptions happen.  Keep up-to-date on what is happening in the marketplace due to weather, economics, social, political and other changes; these can and often do impact your business and its supply chain.  Also, consider your risk due to events such as industrial unrest, product recalls, safety scares, etc.

To strengthen your supply chain, consider:

  • Doubling or tripling where you source your critical components and offerings; if one supplier or avenue of delivery has trouble delivering, you have a back-up or two.
  • Sourcing products from the US, or same hemisphere as it is often to easier to move goods north and south as opposed to east and west.
  • Bartering with others to get the components or offerings you critically need.  Have business partners in addition to your suppliers; other businesses to stay informed, have other resources, and perhaps obtain supplies and products you need.
  • Putting in place penalties to keep your supply chain going with suppliers; if the suppliers does not deliver or is late it is going to cost you money, time and even customers, so ask for assurances backed with non-performance clauses.  On the flip side, you might put in incentivizes for your suppliers that deliver during times of strife. 
  • Digitizing your supply chain to have maximize insight into where your components or offerings are in real time and when they are expected to arrive will make your life as a business owner or manager a bit easier.

With your small business advantage imperiled by a supply chain disruption, it may be time to pre-plan responses when customer expectations are not met.

Here are some pre-planning strategies to consider:

  • Learn as early as possible if your product shipments will be late or even cancelled.  Knowing a problem could exist enables you to have alternatives available.  For retailers, the anticipated busy fall season makes them extremely vulnerable.  Already, some apparel shops are reporting delayed shipments.  Remember, suppliers are going to make every effort to keep their biggest clients happy, not their smaller customers.
  • As soon as you know products will be late, notify your customers.  If you have taken deposits, offer to return them or preferably provide a credit.  Experts believe a majority of clients will leave their deposits in place.  If you have used the deposits to fund your own purchases, keep a running score and notify your factoring agent and/or bank.  Secure an additional line of credit to insure you have enough capital to weather the supply disruption.
  • Develop alternative product fixes for clients.  One way is to offer to lend them refurbished product until their new products arrive.  Another is to do what New Jersey bridal shop owner did.  When the distribution disruption delayed delivery of wedding gowns, she lent bridesmaids dresses she used as display models and refunded the deposits.
  • No matter how angry or abusive your customer becomes, always have a smile on your face.  Be sympathetic to their plight and concentrate on their problem not yours.  Remember, the customer has needs and at the moment he or she really doesn’t care about your problems.  Above all, do not minimize their plight.  You will never know the full details, so remain in concert with the customer trying to solve the problem created by your failure to deliver what you promised.
  • Provide a business credit to your customer(s), if possible instead of a refund; the former will more likely get the customer to come back perhaps sooner and spend money with you, with the latter you may never see your customer again.
  • A sales agreement represents the promise by one person to do or provide to another person something of value.  Despite all the legalese in the sales document, this transaction represents explicit trust on both sides.  With fewer customers, small businesses need to keep that trust for as many buyers as possible.  Doing this when events happen out of their control, they must act to keep that trust.  Having a plan in place is the first step.

Supply chain disruption happen in all size businesses.  Your best bet is to prepare for them, active swiftly when they happen, and keep your customers.