According to a 2022 Nigeria MSME report, 80% of businesses under the Micro, Small and Medium Enterprises in Africa fail within the first five years of their existence. That large percentage can be quite shocking, but there are several factors responsible for it.
These factors include but are not limited to; poor business practices, lack of access to capital, and harsh economic environments in which inflation is a major component.
Inflation is a leading cause of the reasons why many businesses fail. Business owners and entrepreneurs who are not well informed in this area often fall victim to the menace of the effects of inflation ruining their businesses.
So, in this article, I’ll reveal to you the effects of inflation on a business, and how you can shield your own business from being wrecked by it. First and foremost, what is inflation?
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What is Inflation?
Inflation measures the increase in the price of goods and services at a particular period. It is an economic situation where there is a decrease in the purchasing power of a currency. You can also define inflation as the rate at which the prices of goods and services rise.
In any country, so many factors contribute to inflation, such as; customs duty cost, high foreign exchange, machinery and equipment to generate power etc.
The truth is, inflation is always happening. According to the national bureau of statistics, in March 2023, inflation rate rose to 22.04% in contrast to February 2023 which was 21.91%. The more reason you need to know how to protect your business from it.
And another truth is, inflation is a common occurrence to all countries, not just in Nigeria or Africa alone, in case you’re thinking of relocating your business.
Read also: An introduction to the world of small and medium enterprises in Nigeria.
Effects of Inflation on Your Business
Now, let’s discuss some of the effects of inflation on a business. They include;
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Increased costs of supplies
When there is inflation, the rate at which you buy raw materials or equipment needed for your business increases. The rate of transportation, utilities and even employee wages increases. This is a significant effect of inflation on Nigerian businesses.
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Customer dissatisfaction
What happens when you buy supplies at increased costs – you increase the price of your goods and services. And your customers begin to complain because they don’t want to understand why it is so. This often results in them buying less and less.
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Higher interest rates
As inflation increases, interest rates also increase. This is because central banks use interest rates as a tool to prevent runaway inflation and economic growth. Companies are unable to borrow as much money as they would because of the high interest rates. And this makes them less able to meet the demand for goods and services.
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Tighter profit margins
This is a crucial effect of inflation. It leads to a situation where you’re not able to meet up with your profit goals, and if you’re not careful, this is where your business starts to take a downward spiral.
How to Protect Your Business From The Effects of Inflation
Here’s some good news, below are tips you can employ so that the effects of inflation won’t come near your business.
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Keep good business records
This isn’t the time to be careless with cash records or to jumble up personal and business expenses. Ensure you adequately keep track of your income, expenses, tax, accounts etc. This helps you monitor your progress towards your business goals.
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Be smart and creative
Constantly think of new ways to operate your business. You could begin to consider purchasing local raw materials instead of importing from abroad. You could begin to think of partnerships with other businesses to buy in bulk or to share factory and shipping costs. Think, and be creative.
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Don’t overburden your customers
Don’t make your customers pay for the situation by overcharging them, else you will lose them, and I don’t think you want that. Charge reasonably, explaining the situation of things to them in a kind way. Let them feel you have their interest at heart even in the midst of it all.
Read also: How to deliver excellent customer service in your business.
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Re-evaluate your business plans and processes
This is a good time to evaluate your business plan and strategy and make adjustments and improvements where necessary. Cut out unnecessary stuff and replace them with cost-saving methods. The period of high inflation is a great time to review your pricing strategy and decide whether to raise prices to match the current inflation rate.
Compare your prices with that of your competitors to be sure you’re not losing out and that you’re not offering better quality services and products for low costs.
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Leverage technology
You could leverage technology more to save time and costs. Technology is saving lives now, use it to save your business too. Make use of Web-hosted software, in which software is licenced on a subscription basis. This helps to save time and money in your business. It also increases accessibility to customers, allows scalability, and increases efficiency.
Some of these SaaS products help with social media management, customer relationship management, record keeping, contract drafting and so much more. Examples of them are Slack, Buffer, Hubspot, etc.
Read also: How to build a successful small business in Nigeria.
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Treat your employees right
Everyone is hit by inflation, your employees inclusive, so treating them right at this time is a way to boost your business.
Top brands and organizations have begun to adopt a hybrid work model with strong emphasis on output and delivery rather than the number of work hours.. Employees whose work can be done virtually should be encouraged to work from home.
You can also assist your employees with compensation packages such as transport and data bonuses, enrolling them on reliable health care plans etc. The result of this is an increase in employee productivity and increase in business revenue, hence its a win win for all.
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Engage in bulk-buying
Whenever you can, buy your supplies or materials in bulk. This is to save yourself the cost of buying them at higher prices later. This also offers other advantages such as suppliers giving you discounts on your huge purchases.
And there would be no need to pay shipping or delivery fees over and over. Also, it will make you always not run out of supplies, and that may even be an edge over your competitors.
Do you want to promote your business to a wider audience? If yes, sponsor your business on Insight.ng.
Final Words
Dear business owner, your business does not have to fail. It can and should outlive you. Put to use the insights shared above and your business is protected from the effects of inflation.
Got any thoughts, comments, or questions? Bare your mind in the comments or speak to us on WhatsApp. For more posts on how to keep your business on track. Our newsletter is one you shouldn’t miss. Subscribe now.
About Author
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Oluwanifemi Akintomide is an exceptional content writer who helps brands come up with impressive content that engages their audience and turns them into loyal customers.
She has interests in personal growth and development, entrepreneurship, and lifestyle.
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