Canadian small business owners are trendsetting, business savvy, and made of tough stuff. With the pandemic in the rearview mirror, small business owners are used to dealing with challenges. Canadians haven't shied away from those challenges. In fact, 24% of Canadian small businesses originated during the pandemic.

The latest challenge is the increasing inflation rate in the country - the highest it's been in four decades. 

Even though that may sound daunting, there are strategies you can put in place to combat inflation's impact on your business. 

What is the Current Inflation Rate in Canada? 

In April, Canada's inflation rate spiked to a record-breaking 7.7%, an increase of 6.8% compared to the previous year. 

Due to inflation, prices have been increasing for Canadians across the board, causing the purchasing power of the Canadian dollar to decrease. For example, the same grocery cart that cost $100 in 2021 now costs $107.73. An increase of almost $80 per $1000 of groceries. 

As this adds up, Canadians feel the loss in their wallets and are less likely to spend money on non-necessities. 

Why is Inflation so High in Canada?

The apparent cause of the recent hike in inflation is the increase in living expenses, like groceries and the cost of gas. However, experts say several factors caused the high inflation rate, including:

• COVID-19 global supply chain issues and labour shortages 
• Russian-Ukrainian crisis 
• Low unemployment rate 

First, COVID-19 disrupted the global supply chain and created a labour shortage, which triggered an increase in cost-of-living and items like furniture, cars, gas, and food. 

In February 2022, the Russia-Ukraine crisis compounded the supply chain issues and increased gas, oil, and basic groceries prices. 

Furthermore, in April, the unemployment rate dropped to a record low. While a low rate is usually a good thing, the Phillips Curve in economics theorizes that lower unemployment means more money in consumer pockets, meaning they spend more, leading to an upward price trend. 

How is Inflation Impacting Small Businesses in Canada?

Small businesses across the country are definitely feeling the effects of inflation already. They are faced with a tough choice: either deal with lower revenue or pass the added cost of expenses onto their customers through price increases.  

Most small businesses are doing the latter, with 52% of Canadian business owners expecting to raise prices throughout the year. 

Plus, with cost-of-living increasing, consumers have less money to spend, resulting in lower sales for small businesses. 

But have no fear. There are specific strategies small business owners can implement to help wade through increasing costs.

5 Inflation-Fighting Strategies for Small Business in Canada 

Inflation is gaining tread, and it's time for Canada's small business owners to act strategically. More than 30% of small business owners are worried about the impact of inflation on the cost of materials, equipment, and labour, according to the 2022 Canadian Entrepreneurs Survey conducted by Ownr. 

In response, almost half of small business owners surveyed have already raised their prices, with 30% raising them over 10%. Whether you're like the former or the latter, here are some strategies any small business can adopt to help prevent the need for price hikes.

1. Focus on the customer and the employee

It's much more difficult (and expensive) to gain a customer than to lose one, so focusing on your current and past customer base is critical. 

Organic digital marketing requires little overhead, and referrals and word-of-mouth marketing require zero overhead. Make these your top two marketing outlets. 

In the midst of customer service, don't forget about your employees. Embrace remote and hybrid work when possible, and provide quality health benefits and opportunities for advancement and up-skilling. Offer significant perks to reward employees for their service. 

Small businesses should also compare their salaries and benefits packages to those offered by their competitors and skim down on benefits employees are not using. 

When it comes down to it, verbal rewards and recognition don't pay the bills — consider upping your pay recalibrations to quarterly. 

2. Streamline and automate

Streamlining and automating offerings and operations can help small businesses in Canada fight inflation.

Business automation software increases efficiency and reduces redundancy. Small businesses should look to invest in technology that can manage time-intensive business functions like customer relationships, inventory, distribution, accounting, payroll, and sales. 

Some Canada experts recommend re-engineering offerings and value propositions using a tactic sometimes referred to as "shrinkflation." 

In this scenario, you'd reduce product size or volume — or substitute expensive components of your product with those that are less expensive — while keeping the price the same. 

Caveat: The importance of maintaining the delicate balance of profit margin and customer satisfaction can't be overstated. Once customers perceive an erosion of value or service, it's too late to backtrack — sales are already impacted.

3. Stay lean

Small businesses can also lower overhead expenses. First, cut back on the obvious nonessentials, then get creative.  

A good option in today's work environment is to reduce office space, with more and more companies heading towards a hybrid or even 100% remote workplace. This will reduce your overhead expenses and let you move to a smaller, less expensive office space. 

4. Dig into your data

Use technology tools to track performance and gain insights into business operations. 

For example, BDO Canada suggests that small businesses restructure their balance sheets to account for the effects of inflation, like interest rate hikes and potential declines in both enterprise and asset valuations.

It is essential to examine your profit margins before deciding to increase prices. Re-evaluate your costs and then analyze your margins. 

Leverage technology to analyze data and identify your biggest money-makers customer segments and products. Then, focus on your most profitable products or services to increase margins, and strip down those that aren't generating profit.

Experts recommend performing an 80/20 optimization of your business, keeping in mind that 80% of a small business' profit usually stems from approximately 20% of its customers and products.

5. Establish joint ventures 

Small businesses that establish joint ventures will fare better in an inflated economy than those that don't. 

Strategic, well-planned joint ventures (JVs) will build and grow any small business. JVs can be used for product development, production optimization, and marketing purposes. Even one-time project JV's lead to big savings through cost- and resource-sharing. Networking within your small-business community is key to building these partnerships. 

Small business owners can take heart knowing that the inflation crisis in Canada is a temporary state and will subside at some point. But it will never completely disappear because inflation is a constant — and it isn't always negative. In fact, if the economy dips enough, leaving an unused labour force and excess resources, Canada might need inflation to spur it back to capacity. 

Stay on top of your profit margins, expenses, and sales with QuickBooks Online. QuickBooks can help you focus on what you need to get done to run your business in the ever-changing economy. Whether you've just started a small business or looking to grow your established business, having a streamlined accounting software will help you on your way to success. Sign up today!