For many business owners, these are trying times. Inflation is running high, low unemployment has created a tight hiring market and recession worries dominate the daily business news cycle.
It’s a tough environment, to be sure. But it’s important to remember that we’ve had similar situations before: big bouts of inflation led to spiking interest rates in the 1970s and 1980s, for example. And it could be argued that conditions were tougher then, as consumers were more conservative with their spending than they are today, and unemployment was higher.
The takeaway is that, despite the difficulties business owners face, similar (and worse) times have come before, and each time, these problems have led to stronger markets. This will happen again. In the meantime, here are five tips to help you get to the other side with your business moving forward – and stronger than it is today.
1. Be upfront when discussing price hikes with customers
If you’re considering raising prices in response to higher inflation, you’re not alone: in April and early May, Statistics Canada asked business leaders about raising prices and 39% said they planned to do so.
It’s never easy to tell your customers they’ll have to pay more. However, there is some good news: because inflation has been leading the headlines for many months, your clients are unlikely to be surprised. This should make the conversation easier than it would have been in 2019, when inflation was rarely thought of and the consumer price index (CPI) was only rising around 2% annually.
The key is to give your patrons as much visibility on the price increases you’re facing as you can, divulging specific numbers on hikes in raw-material prices, staffing and other major expenses. This makes it more likely they’ll stick with you and helps dispel any suspicion they may have that some of these hikes are opportunist in nature.
To hopefully avoid having a similar conversation in the not-too-distant future, take a close look at your supply chain and consider ordering materials in greater quantity, for example, if you can secure a discount and have the flexibility to do so without borrowing heavily at today’s higher rates.
2. Business investment: Lean more toward optimization, less toward growth
Cast your mind back one year – back then, the economy was booming as pandemic restrictions lifted. While inflation was elevated, it was much lower than it is today. That led some business owners to assume the boom would continue, and they ordered aggressively in response.
Fast-forward to today, and companies that did so, and haven’t pivoted since, are paying a price. In recent reports, for example, Canadian Tire’s merchandise inventory is 18% higher when compared to last year and Walmart stated that its inventory had jumped 33% in the second quarter from a year earlier. Expect both companies (and others facing the same situation) to offer discounts to clear excess goods.
With that in mind, how do you invest for your business’s future today? The key is to focus more on optimization than on growth prospects, ensuring you can deliver the products your customers need at minimal cost. If you need additional capacity to meet demand, consider contracting out production wherever possible – so long as you can do so under flexible terms, in case a sharp downturn sets in, as some economists predict.
Shane Yu, a Business Advisor at BlueShore Financial, is witnessing this shift in real time: “We’re seeing a narrowing of ventures,” he says. “Rising rates are prompting the businesses I work with to find optimizations and streamline processes to offset the amount they have to borrow to provide services to clients. The good news is that many have the flexibility to do this because we talked about being cautious with ordering a year ago.”
3. Give new life to plans that went awry in the past
If your business boasts strong customer loyalty and has a large share of the market, now could be a time to widen your product or service offering. But you’ll want to build in a lot of flexibility by contracting out and/or relying more on freelance or contract workers, as we’ll discuss below.
Yu also says that now may be a good time to look over past ventures that failed and re-evaluate them. With the benefits of hindsight and experience, you may be in a better position to make these plans work now. After all, consumers are still spending strongly, with Canadian retail sales rising 5.7% from a year earlier in June, according to Mastercard, so it might be a good time to reconsider these initiatives and perhaps try them again.
4. Hiring? Consider less-experienced staff (and self-employed workers)
If your business is looking to take on staff but has hit a wall because of the tight labour market, consider looking past trying to compete for the best worker and taking someone less experienced and investing in their training instead. This could help you build a stronger relationship with the employee and reduce the odds of costly turnover later.
Another resource to lean on in this shifting market is self-employed workers, for a couple of reasons. For one, they can give you a valuable outside perspective. And second, of course, you can adjust the amount of work you’re sending them based on changes in demand. This reduces the risk of having underutilized salaried employees on your payroll.
Then, when a more forgiving market prevails, you could build out your internal team – you may even have the opportunity to turn some of these short-term or contract workers into full-time employees at attractive wages should the economy slow and unemployment rise, as will inevitably happen in the future.
5. Lean on outside resources for help
Above all, bear in mind that running a business means you are among your company’s biggest assets, so be sure to put your own mental and physical health front and centre. Yu, for his part, sees avoiding “decision fatigue” as a key part of keeping yourself grounded. Simply break down the problems you’re facing into “now” or “later” columns and keep the bulk of your focus on what needs to be taken care of right away.
Finally, don’t forget to use outside resources, like your local board of trade, chamber of commerce and business advisors – like those available here at BlueShore Financial. They can give you the latest economic data and help you make strategic decisions to drive critical items like staffing, product offerings, business investment and marketing. That can go a long way to get you through this volatile time and over to the brighter days ahead.