The Best Inflation Busting Strategies for Small Business Owners

February 20, 2024
7
minutes to read
by
Justin Bohlmann
Table of Contents

When running a business, it's important to understand how inflation can impact your bottom line. Inflation refers to the increase in the prices of goods and services over time. It can lead to higher costs for raw materials, increased employee wages, and other expenses that can eat into your profits. In this article, we'll discuss the current state of inflation in Australia, its causes, and its impact on small businesses. We'll also provide you with the best inflation-busting strategies to help you protect your bottom line. So, let's dive in and learn more about how to beat inflation as a small business owner.

Understanding Inflation 

Current inflation rate in Australia 

According to the Australian Bureau of Statistics, the current inflation rate in Australia is a whopping 7.3%. This is higher than the Reserve Bank of Australia's target inflation rate of 2-3%, which means that prices are rising faster than the central bank would like. 

How inflation is calculated 

Inflation is calculated by tracking the Consumer Price Index (CPI) change over time. The CPI measures the price of a basket of goods and services that the average household purchases. When the cost of the basket increases over time, inflation occurs. 

Relationship between inflation and interest rates 

Central banks often use interest rates to manage inflation. When inflation is high, central banks will increase interest rates to reduce consumer spending and slow down the economy. Conversely, when inflation is low, central banks may decrease interest rates to stimulate spending and boost economic growth. 

When inflation is expected to decrease 

The Reserve Bank of Australia has indicated that it expects inflation to remain above its target rate for the next two years. However, many factors can influence inflation, and it's difficult to predict when it will decrease. As a small business owner, it's important to know the current inflation rate and stay current on any changes that may impact your business. 

 

Impact of Inflation on Small Businesses 

How inflation affects small businesses 

Inflation can have a significant impact on small businesses. As prices rise, businesses face higher costs for raw materials, increased employee wages, and other expenses. This can lead to lower profit margins, decreased cash flow, and reduced purchasing power. Inflation can also decrease consumer spending, as customers may have less disposable income for goods and services. 

Strategies for managing inflation 

There are several strategies that small businesses can use to manage the impact of inflation. One approach is diversifying revenue streams by offering new products or services less impacted by inflation. Another strategy is to adjust pricing strategies to reflect increased costs, such as increasing prices or reducing discounts. Small businesses can also control costs by improving operational efficiency, negotiating better supplier contracts, and reducing waste. 

By implementing these strategies, small businesses can help mitigate the impact of inflation on their bottom line. However, it's essential to be mindful of the potential impact on customers and communicate any pricing or product changes clearly and transparently. 

 

Stagflation - What does it mean?

Stagflation is a rare economic phenomenon characterised by stagnant economic growth and high inflation. This can be a challenging environment for small businesses, as the combination of slow growth and rising prices can lead to decreased consumer spending and increased costs. 

Stagflation can be caused by various factors, including supply shocks (such as a sudden increase in the price of oil), a decrease in productivity, or poor economic policies. Stagflation can be particularly challenging for small businesses, leading to decreased revenue and increased costs. Small businesses often need help maintaining profitability in an environment where consumer spending is limited, and prices are rising. 

Managing stagflation requires a multi-faceted approach. Small businesses can focus on controlling costs and improving operational efficiency to maintain profitability. Companies can diversify their revenue streams and adjust pricing strategies to reflect changing economic conditions. 

By taking a proactive approach to managing stagflation, small businesses can better weather economic downturns and emerge stronger on the other side. 

Best Inflation Busting Strategies for Small Business Owners 

Here are six ways that small business owners can reduce the impact of inflation on their business: 

1. Offer discounts for early payment 

One way to manage the impact of inflation on cash flow is to offer discounts for early payment. This can incentivise customers to pay their bills sooner, improving cash flow and reducing inflation's impact on your business. 

2. Invest in productivity-enhancing technology 

Investing in productivity-enhancing technology like Thriday can help small businesses reduce costs and increase efficiency. By automating tasks and streamlining processes, businesses can minimise the impact of inflation on their bottom line. 

3. Negotiate better supplier contracts 

Negotiating better supplier contracts can help small businesses manage the impact of rising costs. By working with suppliers to negotiate better pricing and payment terms, businesses can reduce the effects of inflation on their supply chain. 

4. Diversify revenue streams 

Diversifying revenue streams can help small businesses manage the impact of inflation by offering new products or services that are less affected by rising prices. By expanding their offerings, businesses can reduce their reliance on products or services that may be impacted by inflation. 

5. Adjust pricing strategies 

Adjusting pricing strategies can help small businesses reflect increased costs due to inflation. Businesses can maintain profitability despite rising costs by raising prices or reducing discounts. 

6. Stay current on economic trends and policies 

Small business owners should stay informed about economic trends and policies impacting their business. By staying up-to-date, businesses can adjust their strategies and operations to manage inflation's impact better.  

By implementing these strategies, small businesses can better manage the impact of inflation on their bottom line and remain competitive in a challenging economic environment. 

 

How Thriday Can Help with Inflation 

Overview of Thriday 

Thriday is an all-in-one financial management platform that automates banking, accounting and tax using AI. Thriday offers a range of convenient services to small businesses, including invoicing, cash flow forecasting, expense tracking, and financial budgeting

Thriday's approach to managing inflation 

Thriday understands inflation's impact on small businesses and has developed a range of tools and services to help enterprises to manage rising costs. Thriday's cash flow forecasting tools can help businesses plan for and manage the impact of inflation on their cash flow, while expense tracking tools can help businesses identify areas where costs can be reduced. 

Thriday's advocacy for small businesses 

Thriday is committed to advocating for policies that support small business growth and success. By staying up to date on economic policies and trends, Thriday can provide guidance and support to small businesses navigating the challenges of inflation. 

Thriday's innovative financial solutions and commitment to supporting small business growth make it a valuable partner for small businesses looking to manage the impact of inflation on their bottom line. 

Thriday's all-in-one financial management platform

 

Inflation FAQs 

What is inflation? 

Inflation is when the general prices for goods and services rise, and purchasing power falls. 

What causes inflation? 

Various factors, including increased money supply, rising production costs, and changes in global supply and demand, can cause inflation. 

What is the current inflation rate in Australia? 

As of March 2023, the inflation rate for the past 12 months in Australia is approximately 7.3%. 

How is inflation calculated? 

Inflation is typically calculated by measuring the percentage change in the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services commonly purchased by households. 

What is the relationship between inflation and interest rates? 

In general, as inflation increases, interest rates also increase. This is because higher interest rates can help curb inflation by reducing spending and slowing economic growth. 

When will inflation go down? 

It is difficult to predict when inflation will go down, as various factors, including global economic trends, monetary policy, and supply and demand, impact it. Most analysts expect high inflation to remain for the next 12 – 24 months. 

How does inflation impact small businesses? 

Inflation can significantly impact small businesses, as rising prices can increase costs for supplies, labour, and other essential business expenses. This can impact cash flow, profitability, and overall business performance. 

What is stagflation? 

Stagflation occurs when inflation is high but economic growth is low or stagnant. This environment can be challenging for small businesses, as rising costs and low growth can create a tough economic climate. 

 

Inflation can significantly impact small businesses, and it is important for small business owners to understand the causes and impact of rising prices. By developing effective strategies to manage the effects of inflation, such as increasing prices, reducing costs, or diversifying products and services, small businesses can maintain profitability and continue to grow. 

Partnering with next-generation platforms like Thriday can also provide valuable support and resources for small businesses looking to manage the impact of inflation. Thriday's cash flow forecasting, expense tracking, and financial budgeting tools can help businesses plan for and manage the impact of rising costs. Ultimately, by staying informed and proactive, small businesses can successfully navigate the impact of inflation and continue to 'thrive every day'. 

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360 AFSL 241167 (Regional Australia Bank). Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you. Team Thrive No 2 Pty Ltd ABN 26 677 263 606 (Thriday Accounting) is a Registered Tax Agent (No.26262416).

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