Inflation can create tough situations for family businesses, with increased costs and pricing dilemmas. It's important for family businesses to have strategies in place to tackle these challenges, allowing them to thrive. So how does inflation impact on family businesses and what are some strategies to help succeed during inflationary times?
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1. Setting the right prices
When costs increase due to inflation, family businesses often consider raising prices. However, it’s important to assess their position in the market and decide on fair prices that won't drive customers away. The Family Business Survey 2021 found that 49 per cent of all businesses identified the increased costs of doing businesses as a potential threat to growth, so it is crucial to find a balance between maintaining profits and keeping customers happy.
2. Streamlining product range
During inflation, family businesses can review their product offerings and only focus on those that bring in more money. Inflationary periods provide an opportunity for family businesses to evaluate their product offerings, and by analysing sales data and customer preferences, they can identify the most profitable products and streamline their range accordingly.
3. Embracing innovation and change
Family businesses have the advantage of being adaptable. During inflation, they can explore new ideas and products that cater to changing customer needs. By being open to innovation and introducing cost-effective substitutes or exploring alternative products, family businesses can stay competitive and grow.
4. Managing finances wisely
Managing money well is important during inflation. Family businesses should consider borrowing money early on when interest rates are low. This can help them handle increased costs and ensure stability in their finances.
5. Communication and resolving conflicts
Inflation can cause tensions within family businesses. Therefore, it’s crucial to have open and honest communication to address concerns and work together. From the Family Business Survey 2021, only 15 per cent of businesses had a formal mechanism in place to handle family conflict. Resolving conflicts and finding common ground is essential for the long-term success of the business.
6. Reinvesting for growth
Instead of distributing profits as dividends, family businesses should consider reinvesting in the company. By using the money to improve products, explore new markets, or invest in innovation, businesses can grow and thrive even during inflation.
7. Monitoring risks
Family businesses should keep a close eye on market trends and potential risks related to inflation. Regularly evaluating costs, customer preferences, and competition helps businesses make informed decisions and stay ahead.
We’re here to help
Inflation can have a significant impact on businesses, particularly family-owned enterprises that often face unique challenges. Rising prices, increased operating costs, and fluctuating consumer demand can pose a threat to the stability and profitability, and in uncertain times, having a trusted advisor like Grant Thornton can make a difference.
With our extensive expertise and tailored solutions, Grant Thornton can help family businesses navigate the challenges of inflation and ensure sustainable growth and success.
