How entrepreneurs and small businesses can navigate high inflation
Learn how inflation impacts Alberta's businesses and entrepreneurs, with insight on how to mitigate the effects.
By ATB Financial 17 November 2022 5 min read
The past two years have thrust businesses of every size and stage into a whirlwind of variability. Every corner of the planet—and every business—has been impacted in some way by a global pandemic, international conflict and the spectre of high inflation.
According to Rob Roach, ATB's deputy chief economist, that climate of volatility isn’t set to disappear just yet.
“Businesses need to brace for a prolonged stretch of significant economic turbulence caused by the three I's of the Russian invasion of Ukraine, elevated inflation and rising interest rates,” explains Roach. “The seatbelt sign will remain on for at least another year, if not longer, as higher interest rates make borrowing more expensive, inflation remains above the 2% target, and economies around the world either teeter on the brink of recession or succumb to it. On the bright side, Alberta's economy is getting a boost from relatively strong commodity prices. This is helpful, but businesses will still have to fight through the turbulence created by the three I's.”
While there are many challenges facing Alberta businesses, there’s also opportunities to adapt to this changing economy. So how can you make business decisions to lessen the impact of these economic trends?
Strategies to combat inflation
Inflation is the top story of 2022 and for good reason. Canada’s annual inflation rate in September remained stubbornly high at 6.9%.
Small businesses and entrepreneurs have found themselves feeling the pinch with a noticeable change in their costs and expenses thanks to high inflation. There’s action you can take to offset growing costs. Here are a few tactics you can use:
- Have a budget and review it thoroughly. Analyzing your budget and company expense sheet will help you determine your actual spending versus what you expected to spend and identify areas to cut back. Additionally, with rapidly rising costs and demand, we recommend managing your cash flow closely.
- Consider local suppliers. Look into suppliers local to you (whether within the province or country) that would be less impacted by global challenges and rising shipping costs. This makes for a tremendous opportunity to build relationships and support a fellow local business.
- Examine your marketing budget. Review any marketing initiatives you may have and determine which campaigns or expenses have a positive return on investment. You can choose to cut the budget from underperforming initiatives or reallocate to higher-performing ones.
Having a deep understanding of how cash flows in and out makes you better able to make decisions based on the overall impact to your business. For a small or developing business, this knowledge can be crucial for growth. If you’re unsure how to create a budget or manage your cash flow, one of our Entrepreneur Strategists will be happy to guide you through the process.
Supply and a new perspective on business operations
A Statistics Canada survey from July to early August of 2022 found that businesses are still anticipating supply chain issues for the next six months. Other companies are experiencing worsened supply chain challenges despite an improvement in the last quarter.
That’s not all. According to a Business Outlook Survey conducted by the Bank of Canada, surveyed businesses are tackling ongoing supply chain issues by trialling new suppliers, inputs and transportation options, reducing their catalogue of products, delaying orders or raising their prices to temper demand. Here are some strategies that could help your business navigate supply issues:
- Adjusting your sales. Supply chain issues cause companies to delay orders, reduce the number of products available, add wait times to product descriptions or turn customers away temporarily. While these disruptions may be unavoidable, communicating with your customers is critical. This transparency allows you to manage expectations and continue to build relationships based on trust that will outlast any economic downturn.
- Reconsider your product offerings. You can streamline your product offerings based on which inputs are easier to source or less risky to obtain. Or opt for new supplies or inputs that offer more affordable contracts.
- Reevaluate or renegotiate with your suppliers. Are you currently working with suppliers? Now is the time to reevaluate or renegotiate with them. Make sure your suppliers are integrated into your business, working seamlessly with you from ordering to invoicing. Work with your suppliers to create the best practices for both parties. If you’re considering a domestic supplier, make sure that work processes offset the increased labour cost. If an international supplier is the only option, work with them to maximize shipping container space and reduce transport costs.
Solutions for staffing
Staffing shortages continue to present challenges for businesses, both big and small. In fact, a recent Bank of Canada survey revealed that 42% of businesses reported labour shortages. Experts forecast the lack of available labour will have a continued negative impact on overall economic recovery.
“Supply shortages may start to see some relief in the next year, but the labour shortage will likely persist, slowing the full recovery of the supply chain,” says Kris Fleckenstein, Managing Director, Strategy & Performance Enablement at ATB Business.
With that in mind, what alternatives can businesses look at for staffing?
- Evaluate employment types. If your company is struggling to maintain full-time staff, you could hire part-time workers, contractors or freelancers. During the summer months, create student job postings for short-term opportunities. If the needs of your business allows, hire less experienced employees who can be trained for the position or individuals close to retirement.
“This is especially true at the moment with economic conditions worsening around the world while opportunities for business success and growth in Alberta remain possible nonetheless," notes Roach.
While Alberta companies face clear obstacles, we also see strategies to adapt to these changing economic times. If you’re looking for ways to navigate the issues you’re facing as a small or developing business, ATB is here to guide you to where you want to be. We have Entrepreneur Strategists ready to provide you with the knowledge you need to adjust your business and to feel empowered to face the future.