SMEs-COUNTERING INFLATION

SMEs need to prepare adequately to face the on going inflation in our country.

The current increase in price levels and the continuing depreciation of the shilling should be an enough cause of alarm to the SMEs.

Large companies are always better place to buffer themselves against inflation as they can easily hike up their prices to offset the higher cost of production.
On the other hand, the SMEs are left sitting on a tight rope without knowing how to go through the inflation.
However, whenever a challenge arises, there is always a way out of it. The following steps enumerated below, should offer some guidance during these challenging moments for the SMEs:

1)            With the increase in production costs, it is time for the SMEs to start an aggressive and prudent bit by bit increase in their prices in order to offset the inflation. This may not be a welcome idea, but it`s always easier to lure customers into small price increments than one huge jump of price.

2)              Cash loses a lot of value during inflation but it still remains to be the centre of focus of the business. It is prudent to have a cash reserve that will serve as a buffer; as costs tend to increase faster than the rate at which the entrepreneur can increase their prices. The cash reserve will help you to buy time till you are able to raise your prices and pass on the higher cost to your customers.

3)            If your business extends credit to customers, be sure to collect those debts on time. Let not your customers pass their burdens to you.

4)      Pay down variable-interest loans as soon as possible since CBK is likely to increase the interest rates in an effort to counter inflation. The increase in interest rates translates to higher cost of debt which becomes a burden to the business. If there are other loans to be renewed, be prepared for higher interest rates.

5)      Stock up inventory before your suppliers raise their prices. However, this should be after considering the holding cost and the cash reserve required.

6)             Salary and wage rise pressures more often than not accompany inflation. As salaries and wages increase, profits of the firm tend to be reduced considerably. The way to counter this challenge is by ensuring and focusing on efficiency and productivity of your labor force.

7)                  Finally, your altitude counts. Be optimistic although you need be prepared for a more fragile economy and more difficult times ahead. Remember, a recession is but a business cycle, which passes away with time.

With the above guidelines, I believe that most SMEs will be able to sail through this inflation period and come out of it strong and competent enough.