Declarando has produced a guide with practical advice so that the self-employed can protect their businesses against the strong inflation that the country has been suffering in recent months. Is about small gestures that can make these workers optimize the finances of their businesses, at a time when a bad decision can have very serious consequences for the future.
“inflation is a construct. This means that to calculate it, a series of products and services are taken, many of which perhaps a specific person does not consume, so they do not affect him. Therefore, the correct way in which a freelancer should look at inflation is to analyze how it impacts their business and their margins. In other words, it is about seeing to what extent it is affecting the day-to-day expenses of our activity, of analyzing personal inflation”assures Juanjo Traver, economist and co-founder of Declarando.
In this sense, Traver affirms that, for example, a computer scientist should observe how the price of electricity or adsl connections has evolvedwhile a self-employed person dedicated to commercial tasks would be more exposed to higher fuel prices, since gasoline can account for up to 80% of their business expenses.
“In any of the cases, it is important to review how the shopping basket has behaved, because a self-employed person also has to cover your personal expenses, and if your standard of living has gone from having a monthly expense of €500 to €550, that will also have an impact on your business in the end”, he stresses.
These are some of the main tips for the self-employed to protect themselves against the inflationary period we are experiencing:
Analyze the impact of inflation on the business
Although it seems obvious, it is essential that the self-employed make a real analysis of how inflation has impacted him. Through this analysis, it will be easier to understand how much and how inflation has affected your personal situation and, therefore, it will be easier to make the right decisions in each case. For example, perhaps inflation is 10% but for a computer scientist it means 5%, and for a salesperson, 25%.
Redesign pricing strategy
The increase in costs and prices in general should naturally lead to an increase in the price of the products or services offered. However, those freelancers with a very little differentiated offer, highly conditioned by costs, will find themselves with the problem that the client will be unwilling to assume an increase in price.
“Those businesses whose Price strategy they are cost-driven, have much less flexibility, and are more difficult to hedge against inflation. For this reason, freelancers should review their pricing strategy and find an excuse to change it for another that allows them to raise prices in exchange for offering extra value to the product.Traver explains.
Look for financial products that protect against inflation
Faced with inflationary scenarios, it is important that those self-employed with investments, savings and businesses that generate surpluses look for financial and investment products that are adapted to this situation. In any case, for them to protect, it is important that the financial or investment products offer returns equal to or higher than inflation.
Carefully analyze the profitability of the business
Knowing what the profitability of the business is is essential for everyone, but it becomes decisive for those who work on margins, as is the case with freelancers who manage e-commerce. “Many freelancers do not stop to analyze what their profitability is and, when they do, they realize that they are still working with margins below 5%; that means that they have a very serious problem, given that their profitability is below inflation”.
When analyzing profitability, Traver highlights the critical importance of considering the income tax; that is, the part that remains the State. “The benefit is usually understood as the result of income minus expenses, but we cannot forget taxes, which decisively affect the real profitability of the self-employed person”.
Proper financial management
Carrying out good financial management is always essential, and more so, if possible, in these times. For this, it is important to have the necessary tools to analyze the business situation and assess where to put the resources, considering both risk and profitability.
“If you have a business whose profitability barely exceeds inflation, perhaps, instead of investing in the business by hiring staff or expanding facilities, it would be more profitable to invest in other financial products or other businesses”concludes Juanjo Traver.
