The constant increase in the prices of fuel at the pump has become a growing concern for business owners right now. With the prices of goods and services on a constant rise and affecting inventory, supplies/labour costs, more businesses and consumers are confronted with the possibility that the current upward increment in Inflation will persist well into 2023.
It is vital to note that when prices increase, businesses experience increased raw materials, manufacturing, and overhead costs. Furthermore, the purchasing power of consumers erode when inflation rises, and they can only buy fewer goods and services than they used to, and businesses will further record lower sales and low revenue. Inflation happens when demand outweighs supply in a Ghana’s economy, causing prices across-sectors to go up on a weekly and monthly basis.
Inflation causes consumers to be more cautious and spend less, thereby reducing small business revenues; secondly, the purchasing power of the Ghanaian currency decreases, affecting the value; and supplies and labour end up more expensive than they were just days and months before. Inflation forces small business owners to make tough decisions with regards to increasing prices and securing supplies. The following tips will help entrepreneurs to protect their businesses against inflation.
Effective management of cash flow
Entrepreneurs must avoid keeping large amount of cash, especially during inflationary times, since the purchasing power of the cash savings may go down. It will be important to invest the money to keep up with rising market prices. Entrepreneurs must also consider consulting financial advisors to determine the kind of investments to make and at what specific situation. I will advise entrepreneurs to keep a bare minimum cash in their account to preserve the purchasing power of their money. I also believe that one of the most effective cash flow management techniques is by encouraging your customers to make part payments before the end of the invoicing period. This can also include asking for an upfront payment before work gets started or is completed, or offering incentives for early payment, such as a discount.
Maintaining and expanding your network
Networking is a crucial skill if you want to be an entrepreneur, grow your business, and increase your opportunities. Most entrepreneurs must, as a matter of urgency, secure the inventory their business needs to operate in order to protest their business from the impact of inflation. This will require some extra effort to communicate with their suppliers so that you can get a sense of what products are in highest demand. I further believe this can help one anticipate future supply challenges and prepare suitably and if possible, secure a long-term contract with your suppliers to maintain stability in their inventory and prices. It is a good idea to expand your current network that you have options in sourcing your raw materials, especially when your supply chain inevitably impacts your inventory and operations.
Strong pricing power
During inflationary times, prices and pricing strategies are always thrown into chaos. Evaluating your pricing position and pricing power is the most important thing to do right now. The pricing power is the quantity demanded of a product relative to the change in the product and service price. Offering essential services or goods is a great way to find stronger pricing power in an inflationary economy – such as Ghana. Entrepreneurs must develop a highly targetted pricing model that will enable managers to base prices on each of their products and services’ true, current costs and each customer’s true profitability. The business brand’s greatest strength is its ability to justify its pricing model; and therefore, the need for businesses to assess their perceived worth relative to price.
Revisit your product and service offerings
Entrepreneurs must undertake a due diligence of their products and services to identify those that are especially susceptible to inflation and put in measures to mitigate the risk by investing less in those products and services, and developing other product and service lines. This will keep the business healthy and competitive and prevent the waste of time, money and energy on inventory that doesn’t serve the business benefit.
The writer is a lecturer at the University of Professional Studies, Accra
