Inflation can have a profound effect on various aspects of our economy. Small businesses, often the backbone of local communities, are not immune to its sway. When it comes to selling a small business, inflation can introduce both challenges and opportunities, reshaping the landscape for buyers and sellers alike. As the effects of inflation continue to remain present, more and more businesses are worrying about how it has and will impact their business, and if now is the time to sell.
Let’s examine the major factors involved:
Rising prices
Inflation has increased the cost of raw materials, creating a domino effect of increased prices. What does this mean for a small business?
To start, it means that what the business pays for supplies and services to keep their company afloat has increased. They can raise their prices to offset how much more they are spending on materials. The drawback of this option is that some customers simply may not be able to absorb the extra expense, and you lose their business.
Many businesses adopt a flexible pricing strategy to combat this issue. By staying agile, businesses can maintain competitiveness and preserve profit margins despite inflationary pressures.
Overhead expenses
Next, many small businesses have been looking for ways to cut their costs to offset the impact of rising inflation. This can be done through reducing inventory, making budget cuts or finding innovative, more cost effective ways to do business.
But ongoing labor shortages and supply chain issues may make this option more challenging than normal for some businesses. Additionally, as consumers and other businesses look to tighten their purse strings, many small businesses may find themselves facing delayed or cancelled orders, which further cut into their profits.
Long-Term Planning
Whether you are looking to sell your business in 1 year or in 5 years, long-term planning is essential in an inflationary environment. Sellers should consider the potential impact of inflation on future cash flows and adjust their expectations and plans accordingly. Having a good strategy to handle fluctuations in place can make all the difference in the world for running your business, or even for the sale of your business. The exit experts at our sister company, Exit Factor, can help you create and maintain this strategy.
Narrower profit margins
The final option for a small business is to simply accept a slimmer profit margin, meaning less money to save or funnel back into the business. Inflation doesn’t just affect businesses, it affects consumers as well, who must search for ways to make their paychecks go further.
You may find your business’s growth begin to slow or flatten. Over time, it may even become harder to turn a profit. If selling your small business is on the table, the more profit your business is making, the more it’s worth. Maximizing what you can earn from the sale of your business is something a broker can help with, both to ensure your business stays profitable before the sale and is valued correctly to get you the most money possible.
Wondering how much your small business is worth? Try our business valuation calculator tool to get a clear understanding of your company’s potential value. At Transworld, we gather all the information needed to value and list your small business for sale, ensuring you are getting the best return on your years of investments.
Some small businesses may try one of these options or a combination of them to combat the impact of inflation on their bottom line. Still others may decide the best option for them is to sell.
If selling is something a business is considering, now might be the right time. During uncertain times, it helps to have the assistance of a professional broker. Transworld Business Advisors of Colorado are here to help facilitate your business sale.
Connect with a business broker today to get started.
