Surviving Inflation: Managing Small Business Cash Flow in 2023

Have you seen the news? The FED raised interest rates four times in 2022 to combat the ever-worsening inflation that’s jeopardizing our American way of life, and there will likely be more interest rate hikes in the future. Although the effects of inflation can be seen in all areas of the economy, the pressure often falls the heaviest on small business owners, who must make quick changes or risk falling behind their competition.

Regardless of your outlook on the economy, it’s always better to be prepared. Every news outlet and financial media source is warning entrepreneurs of inflation and the possibility of a recession, so it’s best to prepare yourself for the worst sooner rather than later. By taking proactive steps today, you won’t have to react to problems; You’ll already be in a good position to apply a solution.

Remember: the business with the most capital comes out on top after an economic downturn. It’s important to have a financing relationship in place before you need capital, especially if there’s uncertainty on the horizon. Many business owners believe that financing is only used when your business faces an emergency, but in reality, many savvy entrepreneurs use small business loans to support their growth, allowing them to increase their productivity and streamline their success.

Growth might seem impossible with inflation of this caliber, but with the help of competitive financing, you can take your operation to the next level in any economy. If you’re looking to survive inflation, then you’ll need to manage your cash flow, amongst other things, very carefully, and we’ve created a comprehensive guide to help you do so. Read on to learn everything you need to know about surviving inflation and managing small business cash flow in 2023:

Why Is Cash Flow Important?

Cash flow describes the money that goes into and comes out of your business. Your revenue is equally as important as your expenses, and if one manages to slip through your control, it can have devastating consequences for your operations. You need to prioritize maximizing your revenue while keeping your expenses low, much more so than usual, which is often a difficult move to make if you’ve been operating comfortably for a few months.

Inflation also makes it challenging to keep a cash reserve for emergencies. Every time the inflation percentage increases, your emergency fund loses buying power, and you might find that your $10,000 savings can’t go as far today as it could three months ago. This idea applies to all other aspects of your business, including your ability to afford new growth opportunities, which is why it’s so important to carefully monitor your cash flow on a consistent basis, even in fortunate economic times.

Take an assessment of your business. If your cash flow is positive and you have no need to worry about the future, you should still schedule a time to evaluate your finances on a regular basis, say monthly. Businesses who are under the gun regarding their cash flow should evaluate on a more consistent basis, like weekly or daily, if your schedule permits it. As long as your review isn’t taking you away from a critical aspect of your business, you should try to do so enough to ensure that everything is under control and every avenue of opportunity is explored.

What Can Cause a Spike in My Expenses?

Inflationary pressure makes the price of all your expenses more costly, but here are a few situations where you might see a significant increase in how much you’re spending on your business:

• An employee suddenly becomes sick and can’t work for an extended duration
• Your rent increases
• Your supplier increases the cost of your inventory or changes their pay structure in a way that hinders your ability to use them
• Your supplier doesn’t have specific items and won’t for an extended duration
• Change in retail trends pushes customers away from your operation
• An increase in competition in your industry forces you to keep prices low
• Your landlord raises the price of your rent

All of the above-mentioned situations could spell trouble during a fortunate economy, but during inflation, they can be the reason you close your doors for good. While it’s important to have an emergency fund, it’s even more essential to have a financing relationship. The buying power of your emergency fund decreases daily, and if you have a financing relationship behind you, you can pick up the slack and ensure your business operates at its highest capacity.

Five Ways to Improve Your Cash Flow

There are a million ways to improve an organization’s cash flow; You just have to be savvy enough to identify the benefits you would see in your business. Here are five common methods that entrepreneurs use to improve the cash flow of their businesses:

Increase Use of Technology

Business owners can increase their productivity and gain better control over their cash flow by implementing technological improvements in their operations. For example, if you commonly deal with projects that have a lot of moving parts, then a project management application could help you increase your efficiency and ensure that your team is all on the same page. Another example is security monitoring or theft prevention for businesses that deal with high levels of crime or consistently lose inventory to theft.

While some of these advancements are free of charge, there are somewhere the price stands as a significant hurdle for businesses trying to implement these systems. It can be difficult for any entrepreneur to afford a sizeable expense, especially if they’re investing their profits back into the business, but you have to look at the bigger picture. What would your organization look like after the change? Would you generate more revenue? Save more in expenses? If the answer points to your business being stronger after the fact, it might be worthwhile to consider securing capital to help you afford the expense.

Bill Your Customers Quickly

Some businesses wait one, two, and in some cases, more than three weeks to invoice their customers for work performed. While you might want to take a second to relax after completing a large order or back-breaking work, it’s important to bill your customers as soon as possible following the completion of a project, especially in periods of inflation. Late customer payments can be a death sentence for your cash flow, and if you don’t stay on top of incoming invoices, you might lose them entirely, leaving your business without the money you rightfully earned.

This doesn’t mean that you have to shorten the period of time you give customers to pay you. They’ll still have the 60-day window to send your payment, but the early invoice makes them aware of the specific amount immediately. You won’t have to wonder whether the customer received the invoice if you’re on top of sending it on a regular schedule, so try to invoice your customers sooner rather than later to ensure your incoming payments will arrive on time.

Additionally, you can offer your customers discounts for “early payments,” further increasing the speed of your cash flow. Not every business can do this, but it’s worthwhile to consider if you’re looking to stay ahead of the economic pressure.

Evaluate Your Inventory

Take a moment to assess the inventory you have on site. What items are selling faster than others? Are there items you’re not selling as frequently as you like? Once you’ve discovered trends in your inventory, you can begin to make decisions about which products or services to keep offering to clients. For example, if you’re a restaurant, you might find that a few specific dishes aren’t selling as you thought. The ingredients that go into these dishes can, therefore, be decreased and lower your overhead, making it easier to respond to your other expenses.

Everyone’s inventory is different, but you shouldn’t hold on to a product or service that isn’t selling because of your own preconceptions. You might be able to return to that product or service after the inflationary pressure eases, but for now, it’s best to push your best sellers and look for new avenues to generate revenue, ones that would return more profit than the inventory you previously had.

You shouldn’t necessarily “dispose” of the inventory you’re no longer using. If it’s in good condition, consider selling it at a discount, or donating it to charity, if the situation permits it. Some return on your investment is better than none, and you can potentially qualify for tax breaks if you choose to donate your unusable inventory.

Address Your Pricing Strategies Frequently

Some business owners are afraid of raising prices because they think it will alienate customers, further worsening their cash flow issues. However, customers are already expecting price hikes across the board. They’re dealing with rising costs just as you are, and they’ll understand that you have to raise your prices based on the cost of your materials. If you’re especially worried, it can’t hurt to speak with a few of your customers about how they’d feel about increased prices. While some may decide to go elsewhere, your dedicated clients will stay, so don’t be too fearful of raising your prices during periods of inflation.

Search for New Suppliers

The combination of inflation and supply chain issues has created a nightmare for small business owners. Everything already costs more across the board because of inflation. Even if you find the products you need at an affordable price, you likely won’t receive them for months, or a competitor could outbid you at the last moment before the sale is finalized. The market has never been more competitive, and if you find a new supplier who’s offering the goods you need, it’s best to form a relationship as soon as possible and lock your deals into place for the future.

One method of finding a new supplier is to leverage the relationships within your network. Ask your friends and colleagues about their suppliers: Do they have better prices? Can they deliver quicker than the one you’re dealing with? If so, you should reach out to them promptly, as a more affordable supplier can improve your cash flow exponentially.

On a similar note, you might be able to save money by purchasing inventory in bulk with one of your colleagues. The increased order size might bring the overall price down, benefitting both you and the entity you purchase the inventory with. The supplier, seeing the more sizable purchase, may want to prioritize your relationship with them because you’re now more important to them, which can potentially lower prices even further.

Leverage Financing Solutions to Help You Meet Your Goals

If you’re strapped for cash, a growth opportunity is likely not within your reach, especially if you’re planning to further tighten your budget in the coming days. Rather than let the opportunity pass you by, you can leverage a financing solution that can give you an influx of the cash you need to take your operation to the next level.

Banks and credit unions will offer interest rates based on the FED’s current interest rate, so these institutions will likely have high-interest rates during periods of inflation. However, online lenders still offer favorable rates despite inflation, and you could use this avenue to help you grow your business while your competition downsizes.

Many entrepreneurs do this, but others don’t know where to start. If you’re confused about your options, you can consult the expert Business Finance Advisors of National Business Capital, so they can do the heavy lifting for you. Leveraging a 75+ lender marketplace, National’s team connects entrepreneurs and business owners like you with best-fit financing solutions to help them solve their business’s challenges, allowing them to reorient towards success and, more importantly, grow.

Manage Your Cash Flow and Survive Inflation With National Business Capital

Inflation makes everything more difficult to handle. Between managing your expenses and prioritizing revenue production, you likely won’t have a spare minute to research lenders and their various requirements. It’s not your fault; You’re running a business. You can try to find the time, try to manage without a financing relationship, or team up with the experts at National Business Capital to streamline your search for competitive financing options.

At National, we leverage a 75+ lender marketplace to connect entrepreneurs like you with best-fit financing solutions to help them grow and scale fast. Your competition is preparing for the upcoming months, but wouldn’t you rather position yourself to outpace them? With our experienced team of  Business Financing Advisors, you can do just that, and we’ll be there for you after the deal is done for any future financing needs.

With $2 billion recovered for our clients, an award-winning team behind every deal, and the commitment to “Drive Growth for All,” National Business Capital is uniquely capable of helping YOU secure the funding you need to survive inflation and manage your small business cash flow.  Ready to get started? Complete our digital, streamlined application to take the first step toward growth and success.