Rising expenses are the bane of any small business. The owner/operator has an obvious incentive to make a profit, but this is tempered by the realities of a market economy, limits to what a consumer will spend, and rising costs that eat away at profit margins. In this article, you will read about several methods to cover rising business expenses without breaking customer trust or sacrificing long-term viability.
Use Futures Contracts
Futures contracts serve two useful purposes: they can lock in favorable prices for inputs or, if applicable, can be traded on the open market for profit. Suppliers of commodities that are specified in futures contracts will be legally obligated to sell to you at a favorable price, even at their own loss. When your competitors have to get the same business inputs at a higher price, the benefit to your business is obvious. Also, it may be noted, that the futures contract itself can bring substantial profits that may exceed the direct cost savings. In that case, selling the futures contract may be the best move for your small business.
Minimum Credit Card Transaction Limits
Credit cards impose a fixed cost per transaction. Thus, many small transactions are more harmful to your revenue stream than a few large-revenue transactions. To the extent the nature of your business allows, impose a minimum credit card purchase. Though this measure can offer some relief, do not make this minimum significantly higher than your competitors. Customers value the convenience and speed of credit cards and may simply go elsewhere. Also, emphasize and market bulk purchase convenience via credit cards. This is most applicable in B2B sales. Retail customers are unlikely to purchase much in commercial-scale amounts.
Consider Bulk Purchases
Buying in bulk can offer discounts that offset rising business expenses. However, three factors have to be weighed before you buy in bulk in order to get savings and offset rising costs:
- Will your business sell the additional bulk in a timely manner?
- Will the carrying cost of inventory increase to the point of negating bulk purchase savings?
- The total purchase price will still go up even as per-item price decreases. Could that opportunity cost of the bulk purchase and its carrying cost be put to better use elsewhere?
Every business will weigh and answer these questions differently. Different industries, customer and vendor profiles, business debt load, and regulatory/tax regimes will factor into answers to these questions. You can find options to buy in bulk from anything like coffee filters to even office furniture. Don’t be afraid to compare vendors in order to get the best deal for your office.
Invest in Market Share and Volume
Chances are that your business is not alone in dealing with rising expenses. When your competitors are also pressed, this is a chance for you to absorb the cost temporarily in order to offer better deals to customers. If the idea of investing like this makes you scared don’t worry! You’re not alone. When it comes to small business owners and investing, it can be quite a gamble to invest time and money into your business that you may fear might not be worth it. In this case, it’ll be important for you to focus on how to find a financial advisor you can trust with your business. While paying a professional to go over your expenses and investments for your business might seem counterintuitive now, it’ll save your business money in the long run.
Speculate Within Your Market Niche
Here, it may help to find a financial advisor you can trust. The interplay between costs and sales can be complex, though very lucrative for an insightful businessman. You may, of course, direct some of your revenues towards high-risk high-reward ventures or speculative investments as long as they don’t cannibalize your main operations and customer relationships.
Adjust Employee Compensation
Employees will sense if you are trying to short-change them and may retaliate or leave. Moving from fixed to performance-based compensation should only be done if a reasonable person can actually expect to make money and be judged fairly on their performance as opposed to external variables that affect sales.
The best that can be said about rising business expenses is that, if your business is not burdened by excessive debt or lots of depreciating inventory, chances are that these costs are weighing down your competitors also. With smart moves such as bulk purchases, large-revenue credit card transactions, grabbing market share with superior pricing, and hedging via futures contracts, you can ride out rising costs to emerge as a leader in your business venture.