Small Business Strategies for High Costs
Rising costs punish thin margins first. Here is how to reprice, buy smarter and protect cash without losing the customers you have earned.
Fidelity Funding Editorial TeamUpdated Oct 7, 2026· 7 min read
Costs rarely rise in a way that is convenient. A supplier sends a notice with two weeks of warning, rent escalates on the anniversary of your lease, insurance renews at a higher premium and the hourly wage you need to keep a good employee is higher than it was a year ago. Each increase is manageable alone. Together, they can quietly turn a profitable month into a break-even one.
The owners who handle this period best do not wait for the squeeze to show up in their bank balance. They look at the numbers early, reprice with discipline, buy more intentionally and keep a close eye on cash. This guide covers the practical levers: pricing, purchasing, labor, receivables and, when appropriate, outside capital. It is general information, and your CPA or advisor can help you tailor it.
Key takeaways
- Start with a line-by-line comparison to see which costs actually moved.
- Size price increases to your margin, since margin is a share of price.
- Negotiate with suppliers, but avoid pre-buying more than you can turn.
- Rising material costs increase the working capital each job requires.
- Reprice before borrowing; funding cannot fix prices that are below cost.
Find out where your costs are actually moving
Start with facts rather than a feeling that everything costs more. Pull your last twelve months of expenses and sort them into groups: cost of goods or materials, labor, occupancy, insurance, software, marketing and everything else. Compare the earliest three months to the latest three, line by line.
You will usually find that two or three categories explain most of the change. A restaurant may see food and packaging driving the move. A contractor may see materials and subcontractors. Knowing which cost lines rose, and by how much, tells you where to push back and how much your prices need to move.
Reprice with a plan, not a panic
Raising prices feels risky, but holding them while costs rise is a decision to take a pay cut. A price increase should be sized to your actual cost increase and your gross margin, not rounded to a number that feels comfortable. Say a product costs you $12 and sells for $20, a 40 percent gross margin. If cost rises to $13.50, you need to raise the price to about $22.50 to keep the same 40 percent, because margin is a share of price.
Raise prices in a way customers can understand. Give notice where you can, tie changes to specific cost drivers when it is true, and consider tiered options so price-sensitive customers have a lower-cost path. Test on a segment first when practical. Our pricing guide goes deeper on markup versus margin.
Buy more intentionally
Purchasing is the second lever, and small businesses often leave it untouched. Ask your top five suppliers for their best terms, because a modest discount for faster payment, a volume break or a fixed-price agreement can matter. Get a competing quote from at least one alternate source, even if you plan to stay.
Be careful about buying too far ahead to dodge a price increase. Stock that sits for months ties up cash and can become obsolete, and that carrying cost can exceed the savings. If you do pre-buy, run the numbers on how quickly the inventory will turn and what the money could otherwise do.
Look at labor and time
Labor is often the largest and least flexible cost. Instead of cutting hours reflexively, look at scheduling against actual demand, overtime patterns and which tasks can be simplified or automated. Cross-training can reduce the need to add headcount, and reducing turnover is usually cheaper than recruiting and training replacements.
If you hire, be clear on what the position will produce. Our guide on hiring your first employee covers the real costs beyond the hourly wage.
Protect cash while costs are rising
Higher costs raise the amount of cash a business needs just to turn over the same amount of product. A job that used to require $8,000 of materials now takes $9,500, and that extra $1,500 is cash out the door before the customer pays. Multiply by every job in progress and the working capital need grows quickly.
A few habits help:
- Shorten receivables by invoicing faster, taking deposits and following up on day 31, not day 60.
- Negotiate longer payables on non-critical suppliers while keeping critical ones happy.
- Update your cash flow forecast monthly using current costs, not last year's.
- Rebuild a modest reserve before expanding commitments.
- Review recurring subscriptions and contracts for creep.
When outside capital can help, and when it cannot
Working capital can bridge a timing gap when the cost of doing business rises before revenue catches up. It cannot fix a business whose prices are permanently below its costs. If your margins are negative on every sale, borrowing only delays the problem and adds a payment to it, so reprice first.
If the business is sound and the need is real, Fidelity Funding can connect you with funding partners that offer options such as working capital loans, lines of credit or merchant cash advances. The application is short, the initial review uses a soft credit pull and a specialist reviews options with you. Terms vary by funding partner and underwriting, so compare total payback, make sure payments fit your margin and confirm anything tax-related with your CPA.
Frequently asked questions
How much should I raise my prices when costs go up?
Size the increase to your actual cost change and the gross margin you want to keep. Because margin is a percentage of price, you usually need a larger price increase than the dollar cost increase. Run the math per product or service and test the change with a portion of customers if you can.
Will raising prices lose me customers?
Some price sensitivity is possible, but holding prices while costs rise erodes profit just as surely. Give notice, explain changes honestly, offer tiers and monitor results. Many owners find that customers accept modest, well-communicated increases, though outcomes vary by industry and competition.
Is it smart to stock up before suppliers raise prices?
Only if you can sell the inventory quickly. Excess stock ties up cash, takes space and may become obsolete. Compare the expected savings against carrying costs and the opportunity cost of the cash. For fast-turning, non-perishable items it can make sense.
Can business funding help when costs rise?
It can help cover the timing gap between paying higher costs and collecting from customers. It does not fix underpriced products. Compare total payback and payment schedules, and make sure your margins can carry the repayments. Approval and terms vary by funding partner and underwriting.
How often should I review my pricing?
At minimum, review prices quarterly during periods of rising costs and any time a major supplier or wage change hits. Keep a simple sheet showing cost, price and margin for each core product so you can see problems before they reach your bank balance.
This article is for general information only and isn’t financial, legal or tax advice. Funding approval, amounts and terms are set by funding partners and depend on underwriting.