Episode 073 - Overcoming Inflation

Speaker A: Welcome to the Fundamental Entrepreneur Podcast, where entrepreneurs can come to be educated, enlightened, and empowered for success in their business pursuits. Welcome, um, to another episode of the Fundamental Entrepreneur Podcast. I'm your host, Danielle, and we are so glad you're here. And today we are joined by with our co host, Darren. Darren, welcome.

Speaker B: Hey, uh, everybody. Hello. And hello, Danielle. Good to be with you and everyone on the podcast today.

Speaker A: Yes, definitely. So before we dive into our topic today, which is probably a topic that is at the top of people's minds, um, where we're in the kind of this downturn, um, a lot of speculation in the economy. But before we go there, I just want to remind everyone to, you know, if you love this podcast, if you love the help and the tips that it gives you in your business, please go out and rate and review the podcast, share it with those that you know could benefit from the learning within the podcast. Um, and we appreciate your feedback and questions. If you need us to focus on anything specific for you to help you in your business and your profitability, we're glad you're here. And so today we are going to dive into kind of this idea of overcoming inflation in your business and really how is it affecting your business and what are the strategies that you can use to mitigate and alleviate some of the effects from inflation? So, Darren, let's, let's just give a high level. Where are we at today in terms of business and how inflation is impacting business today?

Speaker B: That's a good question. And I think, uh, everybody's filling it in some form or fashion. Prices are on the rise. Uh, the cost to buy something that we've bought many, many times before is much more, uh, expensive. And we're seeing it across the board. And I think, you know, as of right now, we're seeing things in the market, in the Federal Reserve is trying to do some things to help some inflation. We're seeing interest rates being increased. In fact, there was just, uh, another increase. We've had, I, uh, believe 2 or 3.75 percentage points increase, uh, by the Federal Reserve and in an effort to help stem inflation. And so I think everybody's feeling it in some way or another, and small businesses and often fill it maybe a little bit later than other larger businesses. But in general, I think we're all filling it in some form and we're struggling to try to get through all of this. And as well as combat what happens as interest rates go up, are we going to then plunge into a recession as spending goes down and so there's a lot of things that are impacting everyone, and hopefully people are being paying, uh, attention to it, doing things in their business to help mitigate the impact of what we're going through right now.

Speaker A: Yeah. Just to add to that, Darren, I think in some extent you're right. We're all feeling it, whether it's in our business and personal lives, right? Because, I mean, just thinking about how far the dollar goes, right? I mean, that's really kind of the idea is the, the value of the dollar gets devalued, right. And we're not able to buy as much as we used to be able to buy with that same dollar. And I think probably people, everybody's probably feeling their grocery bill, right? Um, like going to the grocery store, sometimes stickers shock. At the end of the day, you're like, wow, that's insane how much I just spent on a few groceries. Um, so, you know, even if we're not feeling it in our business yet, from a small business perspective, we definitely are feeling it, um, as we're paying ourselves and trying to still pay for the. All of the household things that we've historically paid for that is continuing to shrink. So from that perspective, I think I remember Darren when we were growing up, and I remember the moment that gas prices shifted from under a dollar to over a dollar. So that kind of ages us, right? Because now it's five times that. But I remember that shift, and that was like, that's a big deal. And I'm sure everybody, you know, felt that this year is gas prices went over $5. So I think it just continues to be part of the change in our world. Right. And so, you know, there's always going to be a couple of ways from a business perspective to kind of prepare for that and then mitigate that. And I think, uh, you know, if we talk about a couple of those strategies on how do we react to inflation from a business perspective, really, you know, our options are either we can raise our prices to our customers, right. Or we can shrink our costs. So let's talk about that a little bit. I mean, do you have any suggestions, any thoughts around kind of what strategies businesses should employ in what situations?

Speaker B: Well, uh, yeah. The most important thing I think, to think about first of all and understand is there is no one size fits all strategy. There's not going to be a strategy that is going to work for everyone. And this comes down to being the strategy that's going to work for you is you first have to understand your business, you have to understand where you're at. You need to take kind of a self assessment of your business and really kind of look at where you're at. And so I would put, first of all, a plug into just that. Uh, to do that, you need to understand your financial health. And to be able to understand your financial health, you need to have solid financial accounting being done. You need to know where you're at, because you may feel in your heart, I think we're doing okay, things are looking okay, but I would rather have some numbers and some information to back up that feeling, to solidify and make, make that a little more of a comfortable feeling rather than this, well, it's a gut feeling. I think I'm okay. And so I would say first and foremost, you have to kind of do a self assessment. You got to understand your business, you got to understand your expenses, your profit, where it's all coming from. And to do that, you have to have all your accounting in mind, bottom line. Because everything that you do affects how you, how you affects your numbers. And so that, that is important. And so as we talk about, like, pricing and as we talk about, uh, maybe adjusting costs, I think the most important thing is if. Is you got to feel okay needing to raise prices. I know some business owners say, I can't raise prices on my customers. I never have and I never will. Well, at some point, if you don't and costs keep going up, you're going to drown. You're going to drown your business. And so you have to be comfortable with that now in doing that. And whether you make that decision or not, you first, the most important thing is if you decide to do it, you need to communicate that. Don't just decide tomorrow we're raising prices 30%. And your, uh, customers come in and they're like, oh my gosh, what happened? And you're like, well, it just is what it is. Communicate it. Set a date out, three to however many weeks, days, whatever, month out, or whatever, and communicate it. Let them all know and help them say, you know, explain it to them. Um, I recently had to do this, uh, just last year, and I basically sent out a letter to all my clients and said, look, here's the deal. I got to raise prices. I've never done it, but times have changed and I need to. And overwhelmingly the response back was, thank you so much. Appreciate it. You know, we understand. We're there for you, we're with you. And so that, that's important to make sure you communicate that and don't Be afraid to do it if you need to. Now on the flip side of that, if you don't want to raise prices, then you got to look at cutting expenses. You got to look at ways to provide your services at a cheaper price. And I was listening to a podcast with Mike Michalowicz and he talked about this whole thing, this whole concept, and he talked about how when this, the way companies do this is they don't raise their price, but they shrink the product down to a smaller size. So you're paying the same price, but you're getting less. And so that's another way that you could look at doing that is saying, okay, can I provide this service or can I provide this product? And I just have to shrink the cost of it somehow? Which sometimes means shrinking the product down or doing, providing less services for the same price to then, uh, not raise prices. So that's another option. But at the end of the day, it's hard to say which one you should do. But don't be afraid to do either. But first, uh, and foremost, you've got to understand your business. You got to know where you're at, what you're doing. And some of that's understanding your numbers, some of that's talking to your suppliers and talking and finding out more about work. Maybe some opportunities are at where things are, you know, your threats and different things in your business may be. Exit, may exist and just understand those things and then make an educated decision from there.

Speaker A: Yeah, and I like that. I think a couple of things that stood out to me, Darren, I think is number one, I think you're right. Communication, whichever one you go, I think communication is critical in helping your customer base understand the reasons why. Right. Um, because, I mean most, most businesses will explain why they're raising their prices because no one likes to just have their, have prices raised. Right. Without some sort of explanation. But what I've seen is a lot of times you'll see kind of this shrinking value concept and you just see it. It's not. Nothing's ever been communicated about it. And I think especially in the service based world, um, I think it's critical to um, add that conversation, that communication to that so that people understand. I think one of the things I think of, uh, you know, is this last couple of years as we've really watched, um, shipping costs and fuel prices go up, that just understanding that that is a huge, um, cost to those types of businesses that rely on shipping, um, and knowing that that conversation needs to be had, you know, maybe, well we have to raise our prices because, of course, you know, everybody knows the fuel prices are raising, increasing, or, you know, we can no longer include this particular, um, cost in our overall price structure. We've got to separate it and exclude it as kind of a standalone and just, you know, making sure that everybody's aware of that. And, and, um, they. And like you said, everybody kind of understands that. So communication, I think, is number key, is key to that. And I'll say the other thing, you know, really understanding, yeah. Uh, where your business is and what the opportunities are that you can capitalize on, um, in the downturn. And understanding that opportunity and how the inflation's going to impact it, I think will help you make those decisions. And, you know, as you mentioned that podcast with Mike Michalowicz, one thing that stood out to me in that podcast was this whole idea, if you are going to raise your prices, and that's completely understandable. But a lot of times people try to expand their services, right? They see opportunities and they try to offer more of a variety of services out there. What Mike says kind of hit home to me is focus in on what you're really good at, focus in on your expertise and, and expand on that instead of expanding on other services. That way you can really lean in to your expertise and focus on what you know and sell the value of what you're offering because you have the experience and the knowledge to truly offer that. So I thought that was a great, um, suggestion as well.

Speaker B: Yeah, very, very, very true. And as you know, as you do that, the cool thing is as you become an expert and competent and focus on those competencies and demonstrate that value, even though your price goes up, a lot of customers will see that as, I can't live without this. I need this. And the price. We always fear that a price increase will signify, you know, cause customers to leave. And those that leave, we probably want them to leave. In all honesty, they're only there for the price and they don't see the value. For those that stick around and are willing to pay the price and the value, they understand it and they're willing to pay that because they see you as just the, they need you. And that, that's critical. And so don't be afraid to have that, uh, that conversation as well as increase your prices if you need to.

Speaker A: Yep, great. I love that. Okay, so one of the other things I think is probably top of mind, Darren, as you know, we know that inflation is going to stick around for a while, and we know you Know, as it kind of goes through, it's going to go through these shifts, right, where a lot of the big businesses are going to fill up first and then it's going to trickle down to mid businesses and then small businesses. So perhaps, you know, maybe the small businesses haven't felt the full impact of it yet. Um, and so, you know, one of the questions that keeps coming up is, is now the time to get a loan for my business as a safety net or to expand on opportunities going forward where the cost is going to be less to get that loan now, um, versus in the future when it's going to cost me more to get that loan. So what are your thoughts on, um, you know, is now the time to get a loan for business?

Speaker B: Well, I think again, it starts with, you got to understand your business, don't fall trapped. Everybody out there saying, you know, interest prices, interest rates are going up. And we did, we've talked about that earlier, how they've gone up and the reports I've read are suggesting that we're going to see another 1.25 basis points increase in interest rates before the end of the year. And so people are scrambling saying, I need this loan before interest rates go up because it's going to cost more to have that. And uh, before you fall into that trap, I would say again, two things. You've got to understand your business. You got to why, why do you need it in the first place? What is, what is the rush to go out and get a loan if it's to mitigate the downside or to have cash just sitting around so you, you know, in case things get a little too tight? You know, I think that's a risky proposition because at the end of the day a loan is, you still have to pay it back. And so even so, I would hesitate that you need a loan for just that purpose. Now, if there is an opportunity out there to, uh, expand your business and you need obviously the capital to do it through a loan, make sure again that you're looking over why you need it, you've understanding, you understand what it's going to take. Because sometimes we think over expanding our service offerings or our products or whatever, and we fail to forget that how inflation is impacting that, the costs and everything. So we make sure that analysis is solid and what you're doing, because you may be missing something and you're getting this loan and going, oh, the profit margins I thought I was going to have are not really there. And so you got the loan, you expanded and Again, you're having to repay. And so that's just critical. You just got to understand why you need it and what it's going to be used for. And then really tell yourself, uh, at the end of the day, I really think you got to go back to that, why you need it. Do I really, really, really, really need this? And make sure you've just crossed your T's and dotted your I's before you go out and get a loan. Don't just get a loan because everybody's saying, go get a loan. I just, I think that is a horrible, horrible business decision.

Speaker A: Right. Like you said, very risky proposition, um, to do so. So, yeah, I think it goes back to the comment you made earlier, right. Is, you know, make your decision based on data, um, solid data that, um, can make, help you make a good decision and you can back up, um, the reasons why you should have the loan. That's great advice. Thank you, Darren. Hey, so another question, you know, as we talk about, you know, deploying profit first in your business, and if you're using the profit first methodology for your cash flow, should businesses be adjusting the allocation percentages to their sub accounts to, you know, combat or mitigate inflation, according to Mike?

Speaker B: No. And I love that response because I think everybody, uh, and even if they're not using profit first, they're going to start looking to say, well, I need to maybe cut back on my own pay. I need to be cutting back, you know, on other things like the money I'm setting aside for savings on all these other different things. Uh, hopefully if you're cutting back, hopefully it's on prices and things that you're doing, you know, you're finding cheaper ways to do stuff, you're becoming more efficient, that's fine. But these other reasons, like if you've been setting money aside for, you know, taxes, your, your own pay or whatever, whether it's within the profit first framework or it's not. Uh, Mike's comment, I loved it. And he said no. And I. And the reason why is he says, let your business talk to you. You're already operating that way. Let your business talk to you. And as you keep it that way, you'll begin to start feeling where things are hurting and where things are, you know, where you're struggling. And that will then force you to start looking at those places and being better about how you operate your business, where if you just cut back, you kind of COVID up the pain or you cover up what's the problem and you don't realize what's really going on. And I love that. And I think Mike's, uh, advice is sound and that's why I want, I feel like we need to pass that on to everybody who listens to our podcast because just so it's invaluable, let your business speak to you, adjust your operations, how you're doing business, and then if all else fails, maybe then when you would, that's when you would say, okay, I need to cut back on how I pay myself or, you know, what I'm putting towards savings or buying a new piece of equipment or doing whatever, expanding. That's when you would start doing that is after you've, um, let your business talk to you and adjusted your operations first.

Speaker A: Yeah, no, I think that's solid advice. And I, and I actually, I, yeah, I agree with you and Mike on that. And kind of to bring those last two points together, you know, as we talk about the, this, the allocation percentages and you know, having money, um, for kind of that downturn or getting a loan is this idea, kind of the foundation principle of profit first. Right. Is creating a, ah, reserve, if you will, for your business. Um, so I guess is now a good time if a business has not created what we would call a vault account or a reserve. Right. Um, so maybe consider doing it today instead of waiting and getting that loan to have cash for money and when things get really tight.

Speaker B: Well, yeah, absolutely. Any, anytime. And now especially where the economy, we're filling it for sure. But the worry is, is that we're not in the darkest hours of it yet. And I wish we could all know what it is and when it's going to happen, how long it's going to take place. Some of the reports I've been reading, anywhere from we're, you know, six months out to 12 to 18 months of, uh, struggle ahead, nobody knows, I guess, bottom line. And so if you hear anybody that says that they know, take it with a grain of salt and, you know, plan, prepare. So yeah, absolutely. If, if you don't have that, it's time to set up that, that reserve and start putting some money, you know, whatever it is, percent, 2%, whatever, you can set it aside and start preparing yourself because, you know, you look at it, what's the worst thing about doing that? Oh, shoot. The dark hours didn't last as long. The economy, this, the inflation went away a lot sooner than anticipated. We didn't go into recession, darn it. Now I just got this big bundle of money sitting around for me to use and to Be ready as the economy is ready to kick into gear and start growing. Well, shucks, that's the worst case scenario. That sounds pretty good.

Speaker A: Right? I love that. I agree. And uh, for those businesses, like you said, for those businesses that are already operating that way and already have their reserve in place, their three to six month reserve in place, then like you said Darren, it serves as um, you being the bank and being able to capitalize on some of those opportunities that may arise from the shifting economy that then you can go out and truly capitalize, um, and improve your business through that. I mean no one likes to, you know, think about, well I don't want to capitalize on, you know, when everybody else is hurting from it. But I mean it's business, um, when it boils down to it and looking like you said earlier at the opportunities and threats to our own business and finding those areas create proactively that we can improve our own business. Um, is always a good strategy to go into some, some uncertainty like we're, we're facing at this point.

Speaker B: Yes, for sure.

Speaker A: Okay, well, so, so Darren, as we kind of let, let's give our listeners kind of some of the top solutions that they can use as they start facing some of the impacts of inflation and how they can mitigate, mitigate in their own businesses. What are the top suggestions we have for them?

Speaker B: Well, again, I think going back the first thing I would say is if you're, if you don't know your numbers, get your numbers figured out, number one. I mean you've got to understand your business. That's, that is, that is key. Take some time to figure that out and make sure, you know, uh, that your gut feeling is being backed up by supportive data and have that because that'll, that'll be the catalyst to everything else. Uh, another thing is, is, is maybe looking. This was interesting, something I heard about, you know, consider your marketing and not uh, don't m. Cut back on your marketing because everybody else is. That's one of the first places people start cutting back. And so look to ways to market to those customers that are maybe leaving other competitors, companies that are bigger than you and their, their customers are leaving them because their prices are too expensive. Look at ways to market to them. Look at ways to market to customers that um, maybe said no to you before and look to ah, ways to just keep your name out there because everybody else is cutting back. Marketing becomes the first place that people will start cutting back. Right. Look at ways to be efficient in your marketing and retain and obtain More customers.

Speaker A: Yeah. Ah. And I just add to that, Darren, I mean is business does get tight in some areas, depending on the market. You know that another good way is to maybe look sideways. Not necessarily. Not only to look up for those bigger companies that are losing customers, but also look sideways and look at your competition. Like, is there anybody that's going out of business that then you can market to those customers and bring them into your world? Is another good way to look at that.

Speaker B: You know, another thing too is you marketed to obtain the customers you had. How did you do it? Go back to what you did. You know, when you first started your business, you were out there doing whatever it was to get customers in the door. Well, maybe it's time to revert back to those just things you've already done before and start bringing in customers that way. Again, that may not sound fun, but at the end of the day that's how it worked for you before. And it's a great way to go out and get more customers because you already know how to do it, you've done it before. And so just revert back to what you already know and go out and look up into the site for customers that are looking for a new opportunity.

Speaker A: Great. Anything else that we would add as suggestions to.

Speaker B: Yeah, you know, uh, I'd say two other things, and we've kind of talked about this one already. This idea of looking at your services, your products, and maybe trying to understand is there ways to, to separate out services that were once combined or products that were once combined together. This may be the time you have to do that just because of cost and other things to say, you know what, this is now this price, this is now this price and it is it. You know, in the past they were together, but it is now a separate offering. And so that's uh, another way to help make sure that, that you're ensuring that your prices are competitive and you have the cash coming in to pay the necessary expenses that are going out the door. One other thing is this is a great time to consider automation efficiencies and digging through and finding out where you can just operate better in any way possible. And so as you look at those opportunities, again, what is the worst case scenario here? You become more efficient, you become better, you invest in yourself, you invest in. And some people will say, well, I have this extra cash, should I be doing other things with it? The best investment right now is probably in yourself and in your business. But look to become more efficient because you're just going to Set yourself up not only to get through these rough times, but, but at, uh, the end of the day when the sun starts shining again and things look great, you're just going to be in an awesome position to grow and grow well because you've prepared yourself for it. This is a great time to look for efficiencies and to consider just ways that you can operate just the tightest possible way that you can.

Speaker A: Great advice, Darren. Thank you. One of the things I would just, um, highlight again, we've mentioned this in our past podcast and especially as we talk about, um, plugging the profit leaks in your business is to focus on your, you know, as you look at your services, what are your highest profit margin services that you provide? And focus on those knowing that you're going to get the most impact in your business and kind of goes back to that, leaning into your expertise. Right. And a lot of times those go hand in hand. As you lean into what you're really good at, it usually is your best profit, um, potential service offering. So lean into that, focus on the things that bring the most into your business and then you can maximize and make some of those others decisions.

Speaker B: Oh, absolutely. I love that. That is such a great, great thing. And you want to provide all the services you possibly can, but sometimes the best that you can do for your customers is to really focus on what you're good at and those that are the highest profit margins. And don't necessarily say, I'll never provide them again, but realize that right now it's maybe not the time to be focused on those other services that are just not bringing in the profit that is needed.

Speaker A: Right? Yes. Okay. So as we wrap this up, I think, you know, I would say that the biggest thing that business owners can do today to prepare for inflation that may be coming tomorrow is to prepare. Right. Take some time to really look at your business, understand where it's at today, what are the weaknesses that you have today that you need to strengthen and what are the strengths that you can really capitalize in your business and spend some time strategizing and uh, preparing for a plan that will help you kind of ride the wave, if you will, of uh, the down, the dark days that may be coming. And I mean, like Darren said, you know, at the worst, if the worst, if you plan for the worst and the worst doesn't happen, then you have a lot of upside moving forward in your business and opportunities that many competitors may not have. So just taking the time to really spend some time with your business, thinking about your business and planning for the coming months and years and I think is really good, um, sound advice in kind of combating and mitigating what may come and what may not come. Right? Kind of that unknown being comfortable with knowing the uncomfortable is coming and uncertainty is here. So I think that would be the best thing that we can provide you with today. And as always, we hope that this information helps you as a business owner truly excel in your business and bring in more profitability and just helps you enjoy the journey more fully. And as always, please connect with us. Connect with us on, uh, LinkedIn, Facebook and Instagram. Um, Prosenic is where you can find us and we would love to hear from you, love to hear your feedback, your questions. How can we help you more fully step into your CEO role and gain profitability in your business? But until next time, we wish you all the success possible in your entrepreneurial journey.