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Published on: 02/27/2023

How To Survive Inflation as a Small Business

Small businesses are often most acutely affected by rising inflation. Unlike large corporations, they’re more at risk of lacking the purchasing power needed to create stability and weather long-term economic uncertainty, as well as the capital necessary to bridge gaps in lagging demand. Fortunately, there are strategies that companies dealing with inflation can use to their advantage to knuckle down and weather the storm. 

Business owners wondering how to survive inflation as a small business are in the right place. In this article, our fiduciary financial advisors will share some of the policy changes recently proposed by the Inflation Reduction Act, as well as some insights about wealth management for business owners and tips for small businesses on how to adapt to inflation.

How will the Inflation Reduction Act affect small businesses?

The Inflation Reduction Act is an attempt by the current administration to reduce the deficit and encourage economic growth through small businesses. We have yet to see the impact many of these changes will have on small businesses or the economy at large. As of February 2023, the changes include:

  • Supporting small business owners through an extension of the American Rescue Plan’s premium tax credits. Allowing more small business owners and self-employed individuals to receive affordable healthcare will ideally encourage small business growth and entrepreneurship.
  • Cutting energy costs for small businesses that embrace renewable energy. 
    • Small businesses that switch to low-cost solar power will receive a 30% tax credit. 
    • Small business building owners who bring their businesses up to new clean-energy standards will qualify for a tax credit of up to $5 per square foot.
    • Small businesses that use large vehicles or trucks will be eligible for tax credits that cover 30% of the cost of switching to clean commercial vehicles (e.g. electric and fuel cell models).
  • Doubling the Research and Development (R&D) Tax Credit for small businesses. The refundable R&D tax credit will be increased from $250,000 to $500,000 to “level the playing field” between large corporations and small businesses and help instigate high-impact research and development with the hopes of creating more jobs.
  • Incentivizing the manufacturing of U.S.-sourced materials with targeted tax incentives on clean energy technologies like batteries, steel in wind projects, and carbon capture systems.
  • Reforming the tax code, while preserving the lower rates for small businesses and working families that make less than $400,000 per year.

There’s more to it, and we will have to wait and see how the Inflation Reduction Act will affect small businesses in practice, but the intention is to alleviate some of the financial burdens for small companies dealing with inflation and who look to the future, invest in clean energy and American production, and who employ other Americans.

How can small businesses deal with inflation?

How do you survive financially during inflation? You adapt, you learn, and you do not stop investing in yourself or your business. Readers wondering how to adapt to inflation are in luck, the high-net-worth financial advisors at Avidian Wealth Solutions have put together a small list of tips on how to survive inflation as a small business. 

Surviving inflation small business tip #1: reduce your expenses

The first thing that any small business needing to adapt to inflation should do is cut whatever costs they can. Some ways that you can trim down expenses during inflation include:

  • Cutting unnecessary expenses. Look at recurring services and subscriptions to see what your business can live without. 
  • Streamlining your processes. There is almost always room for improvement, and efficiency often saves you money. 
  • Re-negotiating what you can with your suppliers. 
  • Implementing an inflation-conscious budget and be on the lookout for areas where you can further reduce costs.

Surviving inflation small business tip #2: focus on cash flow

Cash flow is a critical factor for the success of any business, and lack of cash flow is the most common reason that businesses fail. Becoming more liquid isn’t always as simple as cashing out assets* or closing out open payments. Some other ways that you can focus on cash flow while times are tough include:

  • Monitor cash flow regularly so that you can identify gaps or trends.
  • Speed up collections while maintaining professionalism. Consider incentivizing early payments or updating contracts. 
  • Retool your strategy to increase your working capital.
  • Manage your inventory. Carefully consider what inventory can be sold, as well as reducing pars for inventory moving forward. 

*Continue reading: How does inflation affect stocks

Surviving inflation small business tip #3: automate

Leveraging technology for as many processes as possible can give your small business new flexibility. Software and apps for things like payroll and inventory can end up saving you time and money. 

We know that this isn’t the ideal way to spend your time, but you should also take a look at whether or not you are paying anyone unnecessarily for processes that can be automated. Taking a look at inconsistencies in process and budget can be an impactful tool for your business during inflation, but we do not recommend panicking and letting go of all of your employees. In fact, quite the opposite is often beneficial. 

Surviving inflation small business tip #4: keep your employees happy

Retaining loyal and hardworking employees that have already been trained in all of your processes is essential for weathering inflation. Hiring new employees (who will expect high salaries because of hard economic times) and training them is a financial strain that many small companies dealing with inflation cannot handle. 

Try to save your employees money however you can, and try to retain them if they do good work. Talk to your employees about how their lives are being affected by inflation, and remember: buying the office lunch bimonthly is a lot cheaper than hiring and training a new staff. 

Surviving inflation small business tip #5: reduce supply chain risk

The supply chain is one of the first things that experience a negative impact when prices shoot up. Increased material costs, shipping costs, and significant shortages and delays can be too much for small businesses to weather. 

A great way to reduce the risk presented by supply chain problems is to diversify your supply across multiple vendors so that you can have flexibility when it comes to both price and availability should problems arise. 

Surviving inflation small business tip #6: seek professional financial guidance

It is essential that small business owners adapt to the uncertainties of the market if they want to stay alive. Running a business during inflation isn’t always easy, but it certainly isn’t impossible. 

You cannot panic, and you cannot stop thinking about all aspects of your business. Although economic uncertainty might distract you from tax planning or implementing small business owner retirement strategies, high inflation or economic recession is no time to take your foot off the gas.

Taking care of everything that you need to take care of as a small business owner can be a daunting task even in a healthy economy. Our final tip is not to forget one of the strongest tools a small business owner can arm themselves with: a financial advisor that they can trust. 

How to survive inflation as a small business: consult the professionals.

While reducing costs, prioritizing cash flow, and embracing technology can help your bottom line, if you’re wondering how to survive inflation as a small business owner, you may want to consider consulting a team of professionals. Financial advisors can help you predict and prepare for economic uncertainty so that everyone can emerge stronger on the other side.

At Avidian, our multidisciplinary team of professionals offers wealth management solutions from a holistic, conservative perspective. We analyze every possible angle, applying the expertise of a team of professionals and deploying research-vetted and time-tested strategies to help you reach your long-term goals.

We provide solutions. Whether you’re interested in high-net-worth retirement plans, small business tax planning, or estate planning to make sure you leave behind the legacy you’ve always imagined, Avidian Wealth Solutions is here to help. 

Schedule a conversation with us today!

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