Whether gasoline or groceries, the cost of goods have escalated across the country, impacting people everywhere. While we often read about consumers feeling the effects of inflation, companies face their fair share of difficult decisions as they explore possible steps to keep their businesses afloat and maintain profits. While large enterprises will likely be more insulated from the impact that growing costs inevitably have, small businesses are gearing up to make tough decisions as they grapple with rising supply and labor costs. For those seeking guidance on inflation-proofing their business, here are three key small business tips to keep in mind:
Whether distinguished by its unique goals and values or its distinct approach to serving customers, every business is different in its own way. Shouldn’t small business tips focus on standing out? Well, while differentiation is key, observing how the industry as a whole responds to price increases can prove helpful. In fact, it’s a key indicator in times of crisis and economic uncertainty.
The pandemic is an excellent example of how small businesses thoughtfully followed industry trends to adapt their business and overcome the challenges presented in their new normal. As part of this, businesses trended towards adopting new technologies that enabled a mobile workforce and avoided business disruption caused by certain quarantine mandates. In the same vein, dine-in restaurants quickly shifted to take-out models and leveraging gig economy workers in order to maximize revenue and cut down on restaurant operating costs.
If there’s a clear shift in the way your industry is trending, investigate it. With better understanding, consider whether the new approach is right for your small business.
Taking a wide-lens view of industry trends is only the first step in inflation-proofing your business. The second of our small business tips is to look into what your competitors are doing. While it’s important to follow where the industry is headed as a whole, monitoring your competitors’ activity can be equally eye-opening. Take note of how those other small businesses are adapting. Which products and services are they raising prices on? How are they managing physical space and hours? Finally – and most importantly – how are they managing their people?
Knowledge is power. The last of our small business tips is simple: look in unexpected places to control costs. By assessing both industry and competitor trends, businesses can begin to devise strategies to combat rising prices. With margins possibly already razor thin, controlling costs in unconsidered areas can make a world of a difference. A great example of this is your company’s vehicle program.
Whether the economy is rising up or falling down, flexibility is a significant strength, especially within your vehicle program. The ability to adapt swiftly to market changes positions your business as a fierce competitor who can keep pace with increasing, volatile costs.
Unfortunately, most companies have vehicle programs in place that lack the flexibility necessary to overcome times of inflation and economic uncertainty. These programs have hidden costs that may be costing your business extra, and include:
Consider a business with company-provided vehicles. On top of lease or ownership costs, a company with this type of vehicle program pays for maintenance, fuel costs and, potentially, legal expenses. It’s no wonder fleets are the most expensive vehicle program.
Additionally, the cost of fleet programs typically do not include additional support costs. More often than not, it will also require a full-time hire or an outsourced effort to manage. On average, fleets cost companies $12,816 per driver in 2021.
Also referred to as an auto allowance or vehicle allowance, companies with this type of vehicle program provide employees with a stipend each month. Companies like this program for several reasons, but often overlook the large amount of tax waste.
The IRS considers car allowances additional income because it isn’t tied to specific business mileage. That makes it taxed. So, a $600 allowance costs employers $645.90 after FICA tax, while employees only take home $419.10. For every $100 flat allowance, $38 is lost to taxes. This doesn’t help your business or your employee protect against inflation.
Also referred to as a cents-per-mile (CPM) program, companies with this type of vehicle program pay employees cents per business mile driven. With this method, companies commonly use the IRS mileage reimbursement rate as it guarantees tax-free reimbursements.
While companies using a mileage reimbursement program might find it easy to use the new rate each year, unfortunately, it fails to reimburse driving employees accurately. The IRS announce their annual mileage rate at the end of the previous calendar year. While they made a mid-year adjustment for the first time in more than a decade to help combat inflation, the rate still fails to account for driving costs specific to each driving employee.
Companies looking to cut costs in their vehicle programs and hedge against inflation should look to the fixed and variable rate (FAVR) reimbursement. FAVR considers the fixed and variable costs of owning and operating a vehicle. These reimbursements are also tax-free, specific to employees’ geographic costs and submitted through an IRS-compliant mileage capture app.
A FAVR vehicle program with Motus accounts for the fluctuating costs of owning and operating a vehicle and updates each month. This means your business can fairly and accurately compensate workers for the exact cost of business – no matter how high costs soar – while protecting your own bottom line.
Following these small business tips can significantly benefit your company. Beyond industry and competitor knowledge, your business can adapt with a flexible vehicle program. That’s a benefit many of your competitors might not know to leverage. Interested in learning more about how to make positive adjustments to your vehicle program? Looking to reveal areas where your business could be more profitable as the cost of inflation continues to climb? Check out our small and medium business content.