By Rieva Lesonsky
Inflationary pressures are especially heavy on small business owners, but there are ways to cope.
Skyrocketing rent is just one of the inflation challenges impacting small businesses right now, but it’s a significant one that can impact your company’s survival. If your business is struggling with high rent and fewer customers post-pandemic, you might try renegotiating with your landlord. More landlords today are willing to reduce the rents they charge to avoid looking for new tenants or facing empty storefronts.
Rent is not the only inflationary issue entrepreneurs are dealing with right now. Many business owners feel pressured to cut expenses, but when trying to hold on to employees while we’re still in the middle of “The Great Resignation,” it’s become especially challenging.
To get some insights, I recently talked to Ben Johnston, the COO of Kapitus, an alternative lender, about how small business owners can save money and navigate their way through inflationary pressures.
Rieva Lesonsky: Inflation is impacting so many small businesses today, and the cost of rent is one of the primary stressors entrepreneurs face. How can business owners renegotiate rents with their landlords?
Ben Johnston: Business owners should be transparent with their landlords. If you’re struggling with higher costs, talk to your landlord about how much rent you can afford and what the alternative would be if you can’t agree on that amount. Landlords don’t want to be faced with empty storefronts. Come to the negotiation armed with the current market rents of other comparable locations.
Lesonsky: Are the negotiations different for owners of stores and/or restaurants and those in office buildings?
Johnston: The strength of the current rental market varies by geography, but in many locations we are seeing a rebounding storefront rental market for restaurants and retail stores. This is especially true in residential neighborhoods.
Office buildings in many locations have yet to return to their pre-pandemic occupancies as companies continue to be flexible around working from home and hiring full-time remote employees. And restaurants and retail stores in and around many office buildings continue to suffer from a decline in foot traffic. So when negotiating with your landlord, note the recent foot traffic trends in your location and consider tying rent to vacancy rates in certain nearby office buildings.
Lesonsky: Many office-based businesses are encouraging their employees to return to the office. Are they better off staying remote (to eliminate rent inflation) until inflation starts declining or the threat of a recession passes?
Johnston: Many office-based businesses have completely reimagined how work is done since the start of the pandemic and have become increasingly comfortable with remote work and work conducted outside of traditional business hours.
While some companies are encouraging a return to the office, only a minority are requiring everyone to be back five days a week. This means that over time, businesses will reduce the size of their office footprint relative to their employee base. For companies struggling with inflation and an uncertain economy, reducing office space may be a smart way to help preserve margins.
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Lesonsky: What are other ways for businesses to reduce their business expenses to combat inflation?
Johnston: Wage inflation and a shortage of qualified employees are compelling many businesses to add technology that can reduce labor requirements. Many are implementing software that facilitates order taking, payments, inventory management, and accounting. Manufacturers are developing robotic and 3D printing technologies, while other businesses are looking overseas to secure clerical and call center roles at lower costs.
The current strength of the U.S. dollar is making the sourcing of overseas labor even more compelling.
Lesonsky: Since one of the biggest challenges for small business owners today is keeping employees, do you have to work around salary or benefit cuts?
Johnston: It is a hot labor market in the United States today, so businesses looking to reduce costs will struggle to do so by targeting the salaries and benefits of current employees. Instead, they should focus on finding ways to make their employees more efficient and consider low-cost ideas to improve employee satisfaction, such as flexible work schedules and remote work as the job permits.
Lesonsky: Instead of cutting expenses, any ideas about how to increase revenues at times like these?
Johnston: Times of economic stress also tend to be times of great ingenuity. In today’s economy, businesses not only struggle with higher costs, but with longer lead times and an uncertain global supply chain as well. Companies that can leverage technology to manufacture products locally can shorten the supply chain and give their customers confidence in timely delivery. Today’s customers will be willing to pay a premium for the speed and reliability of sourcing.
About the Author
Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been covering small businesses and entrepreneurship for over 30 years. Get more insights about business trends by signing up for her free Currents newsletter.
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