Managing your business during a period of high inflation

MICRO, Small and Medium Enterprises (MSMES) in Africa’s biggest economy are facing tougher times as the country’s rising inflation rate is increasing their cost of operations, thereby affecting their financial performance.

Nigeria’s inflation rate accelerated for the ninth consecutive month to 21.09 percent in October 2020 from 15.60 percent in January, data from National Bureau of Statistics (NBS) shows.

The inflationary environment which has intensified by the high cost of foreign exchange, customs duty cost, machinery and equipment to generate power, insecurity, flooding and the Russianukraine crisis has reduced the number of MSMSS by about six million to 35 million in 2022 from 41 million in 2017, according to the Nigerian Association of Small and Medium Enterprises.

To avert this, here are ways of managing your businesses in inflationary periods.

Keep personal, business expenses separate

A lot of entrepreneurs are one man businesses, so there’s a common mistake of not separating themselves from the business. As a business owner your business is a separate entity from yourself.

The first step to doing this is to pay yourself, and have a monthly salary and a separate account for it, so you do not mix up your personal expenses with the company’s expenses.

This way you’re able to keep track of the business spending.

Cut costs, keep expenses at a minimal

During inflationary periods, the prices of goods and services are constantly going up and as a business your aim is to keep production cost low.

Create a realistic budget for your expenses and ensure to include miscellaneous too.

Record your expenses immediately to avoid omission, this includes both your purchases and your sales. Raw materials are currently expensive due to FX scarcity, source for quality local products to cut costs, alternatively share the cost with a similar company e.g factory cost, shipping cost, logistics, etc. You can also partdamaged ner with other businesses to buy bulk raw materials and get huge discounts.

Another way to reduce cost is to focus on your cash-cows; they are products or services that generate the most revenue. By streamlining your products or service you spend less on production and marketing as it’s already doing numbers.

Establish good relationship with your suppliers

It is wise to maintain good relationships with suppliers, especially during inflation, optimize the relationship to land favorable deals such as late payment, and discounts on early payment, and negotiate for other incentives such as help in the purchase of big equipment. Try to squeeze as much as you can get from the relationship.

Be innovative

If you have to increase the prices of your goods during inflation, you also have to find ways to maintain your customers despite the hike. This may include repackaging to offer the same products in different sizes that are affordable across your customers’ pocket.