Rising inflation and interest rate rises have already had a major impact on the economy and that means businesses too.
As the cost of doing business gets more expensive Perth commercial loan brokers, Finance 48, has formulated a list of strategies that you might consider implementing to ensure your enterprise remains profitable – even during the tough times.
Finance 48 understands that to find the right solution for your business, you need to first understand where your budget is being hit the hardest. So here are some of the factors that your should take into consideration:
Increased Labour Costs
When the cost of living rises, employees may demand higher salaries to keep pace, resulting in increased labour costs for businesses.
Higher Costs for Goods and Services
The rising cost of living can lead to increased prices for goods and services that businesses rely on, such as raw materials, utilities and transportation.
Decreased Consumer Purchasing Power
When the cost of living rises, consumers may have less disposable income, which can result in decreased demand for goods and services, impacting a business’s revenue.
Inflation
Inflation, which is a general rise in prices and a fall in the purchasing power of money, can increase the cost of doing business, as businesses may need to raise prices to maintain their profit margins.
Increased Interest Rates
Rising interest rates can increase the cost of borrowing for businesses, making it more expensive to finance growth and expansion. This is certainly an area where Finance 48 can help your business find the best rate for you; particularly when it comes to business loans.
WHAT ARE MY OPTIONS?
Below are some measures you could potentially take to stay on top of rising costs:
- Cost Cutting: Identify and eliminate unnecessary expenses, such as reducing energy consumption, finding cheaper suppliers, and streamlining processes.
- Price Increase: Raise your prices to compensate for the increase in costs but be mindful of the impact on your customer base.
- Increase Efficiency: Use technology and automation to increase productivity and reduce waste.
- Diversification: Expand your product or service offerings to reduce reliance on any one area.
- Increase Revenue: Look for new opportunities to generate income, such as expanding into new markets or offering additional services.
- Monitor Spending: Regularly track your costs and expenses to identify areas where you can reduce spending.
- Negotiate Contracts: Reach out to suppliers and negotiate better terms on contracts to lower costs.
Remember, a combination of these strategies may work best for your business, and what works for one business may not work for another.
At Finance 48, a finance broker in Perth, we thought it might be a good idea to go into a bit more detail to explain the levers that are available to you in managing your costs.
COST CUTTING
The most effective cost-cutting measures for reducing business costs can vary depending on the specific business and its operations, however, some common and effective measures include:
Reducing energy consumption
This can be achieved through simple measures such as turning off and unplugging lights and other equipment when not in use and implementing energy-efficient solutions.
Streamlining processes
Streamlining processes can help reduce waste, increase efficiency and lower costs.
Negotiating with suppliers
Reach out to suppliers and negotiate better terms on contracts to reduce costs.
Implementing remote work
By allowing employees to work from home or remotely, businesses can save on overhead costs such as rent, utilities and office supplies.
Using technology
Investing in technology can help automate processes and reduce labour costs.
Trimming down non-essential expenses
Businesses can save money by cutting down on non-essential expenses such as entertainment, travel and marketing.
Outsourcing
Outsourcing non-core functions to third-party providers can reduce costs, improve efficiency and free up resources to focus on core business activities.
It is important to regularly re-evaluate cost-cutting measures to ensure their effectiveness and adjust as necessary.
NEGOTIATING A PRICE INCREASE
Negotiating a price increase with customers can sometimes be tricky to navigate, but there are a few key steps that can certainly help:
- Plan ahead: Before negotiating, take the time to plan your approach and determine your desired outcome. Consider factors such as market conditions, customer relationships, and your bargaining position.
- Communicate early and clearly: Let your customers know in advance that a price increase is coming. Provide clear and concise reasons for the increase, such as rising costs or increased expenses.
- Be transparent: Be open and transparent about the reasons for the price increase and provide relevant data and market analysis to support your case.
- Offer value-added services: Consider offering additional services or benefits to offset the price increase. This can help to demonstrate that you are providing value for the higher price.
- Be flexible: Be open to negotiation and be prepared to make compromises. Offer alternatives such as longer payment terms, volume discounts, or bundled packages.
- Manage customer expectations: Be proactive in managing customer expectations and be prepared to handle objections. Address customer concerns in a professional and empathetic manner.
- Follow up: After the negotiation, follow up with your customers to ensure they are satisfied with the outcome.
Remember, the key to successfully negotiating a price increase is to communicate effectively, be transparent and provide value. By approaching the negotiation in a professional and honest manner, you can help ensure a positive outcome for both you and your customers.
INCREASING EFFICIENCY
The best approach to increasing efficiency in a business involves a combination of several strategies, including:
- Process analysis: Conduct a thorough analysis of your business processes to identify areas for improvement and streamline operations.
- Technology implementation: Invest in technology and automation to increase efficiency and reduce manual labour. This can include software tools, cloud computing and robotics.
- Employee training: Provide training and resources to employees to help them work more efficiently and effectively.
- Standardisation: Standardise processes and procedures to ensure consistency and reduce errors.
- Delegation and empowerment: Delegate tasks and responsibilities to team members and empower employees to make decisions and take ownership of their work.
- Flexible working arrangements: Offer flexible working arrangements such as remote work, flexible schedules and job sharing to improve work-life balance and increase productivity.
It is important to continuously evaluate the effectiveness of these strategies and adjust as needed to ensure maximum efficiency. Remember that increasing efficiency is an ongoing process, and it’s important to stay adaptable and flexible to new technologies and processes as they emerge.
DIVERSIFICATION
Diversification is a strategy that can help a business reduce its reliance on any one area and can lead to increased stability and growth. Here are some recommendations for diversifying your business:
Market research: Conduct market research to identify new market segments or opportunities that align with your business goals and strengths.
New product or service development: Develop new products or services that complement your existing offerings, or that target new customer segments.
Expansion into new geographic markets: Consider expanding into new geographic markets, either domestically or internationally, to reach new customers and increase revenue.
Strategic partnerships: Form strategic partnerships with complementary businesses to expand your reach and capabilities.
Diversification of revenue streams: Consider diversifying your revenue streams by offering multiple products or services, or by adding recurring revenue models such as subscriptions or memberships.
Acquisition: Consider acquiring complementary businesses or acquiring businesses that operate in different markets or industries.
Innovation: Encourage and invest in innovation to stay ahead of the competition and identify new opportunities.
It is important to approach diversification strategically and with caution, as expanding into new areas or markets can come with risks and challenges. Consider seeking the advice of a business advisor or consultant to help guide you in the process.
INCREASING REVENUE
There are several measures a business can take to increase revenue, including:
Upselling and cross-selling: Offer customers additional products or services related to their current purchases to increase the average order value.
Pricing strategies: Review and adjust pricing strategies to ensure they are competitive and optimized for maximum profitability.
Market expansion: Expand into new geographic markets or target new customer segments to reach new audiences and increase revenue.
Product or service innovation: Introduce new products or services that meet evolving customer needs and drive revenue growth.
Customer acquisition and retention: Focus on acquiring new customers while also retaining existing ones through exceptional customer service and loyalty programs.
Digital marketing: Implement digital marketing strategies to reach new customers and increase brand awareness.
Sales and promotions: Offer sales and promotions to incentivize customers to make purchases, and to drive traffic to your business.
It’s important to evaluate the effectiveness of these strategies on an ongoing basis and adjust as needed to ensure continued growth and success. A combination of these measures can help drive revenue growth and long-term success for a business.
MONITOR SPENDING
To effectively monitor spending, it’s important to have a system in place to track and categorise expenses. Here are some steps you can follow:
- Set up a budget: Create a budget that outlines your expected income and expenses and includes a plan for managing spending.
- Track expenses: Use a tool or software to track all of your expenses, including receipts, invoices, and bank statements.
- Categorise expenses: Categorise expenses into categories such as supplies, marketing, utilities, etc. to gain a clear understanding of where your money is going.
- Monitor spending regularly: Regularly review and analyse your expenses to identify any areas where you may be overspending or under-budgeting.
- Set up alerts: Set up alerts or notifications to alert you of unusual or unexpected expenses, or when you are approaching or exceeding your budget.
- Review and adjust budget: Regularly review and adjust your budget as needed to ensure it remains aligned with your business goals and reflects changes in your spending patterns.
- Seek professional advice: If needed, seek the advice of a financial advisor or accountant to help you establish a budget, monitor spending, and manage cash flow.
By implementing these steps, you can have a comprehensive system in place to monitor spending, control costs, and make informed financial decisions for your business.
TAKE ACTION
Businesses can address the impact of rising costs of living by controlling expenses, increasing efficiency and seeking new revenue sources. Additionally, it’s important to constantly monitor and adjust pricing strategies to ensure competitiveness and profitability, and to consider alternative cost-saving measures such as negotiating with suppliers, outsourcing, or automating processes. Diversifying products and services and expanding into new markets can also help mitigate the impact of rising costs on a business’s bottom line. The important thing is to do something. Take action!
As a commercial loan broker in Perth, Finance 48 is happy to work with you to find the best finance solution for your business. Whether it is a car loan or a commercial loan you need for your Perth business, we will be able to use our network to find you the best rate available. Managing and navigating the interest rate rises will always be one of the best ways to ensure that your business stands a fighting chance. So contact us today.