How to strengthen business financial resilience under such conditions, comments Darius Tamašauskas, head of the business client department at Luminor bank.
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Rising prices and increasing operating costs were identified as one of the factors that could have the greatest negative impact on company revenues by the end of the year by 30% of Lithuanian small businesses. In Latvia, 35% said so, and in Estonia – 42% of respondents. In Lithuania, 30% of companies also mention energy and fuel prices, 23% – labor costs, and the same number – changed customer behavior.
“For small businesses, inflation often means not only more expensive raw materials or services. It transfers to wage expectations, premises maintenance, transport, energy, digital tools, and daily operations. Large companies usually find it easier to distribute such pressure, while for small businesses even an increase in a few cost lines can reduce profitability,” says D. Tamašauskas.
Increasing business expenses are also reflected in pricing plans. In Lithuania, 37% of small businesses plan to raise prices by more than 5% this year, and another 13% – up to 5%. 31% of companies plan not to change prices, and 18% say it is still too early to decide. The main reason for this decision in Lithuania is rising costs, named by 48% of respondents. Labor costs as the main reason for price changes were highlighted by 23% of Lithuanian companies, 12% in Latvia, and 19% in Estonia.
First – clear cash flow planning
According to D. Tamašauskas, one of the most important elements of financial business resilience is clear cash flow planning. Small businesses should regularly assess when income reaches the company, when payments to suppliers, employees, and the state are due, and how long existing reserves would last if sales temporarily decreased.
“When costs rise, a monthly result alone is no longer enough. It is important for the business to see at least a few months ahead – what expenses are approaching, which invoices might be delayed, what seasonal fluctuations to expect. If cash inflows and outflows do not coincide in time, even a profitable business can experience tension,” he says.
According to the head of Luminor bank’s business client department, companies are advised to be prepared to operate under such basic scenarios: what if sales decrease by 10–20%, suppliers raise prices, and customers start delaying payments. Such plans allow faster decision-making and avoid delayed reactions to changes.
Pricing should be reviewed regularly
As costs rise, some businesses avoid raising prices, fearing losing customers. However, according to D. Tamašauskas, not reviewing pricing can also be risky – especially when costs increase for several consecutive quarters.
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“Price changes should not be impulsive or made only when the business is already experiencing losses. It is better to review pricing regularly and evaluate which products or services are still profitable and which only generate turnover. Sometimes it is enough not to increase prices overall but to review the assortment, discounts, or service packages more precisely,” he details.
It is also important to assess what value a specific product or service creates for the customer. If the business can clearly state quality, convenience, speed, or other benefits, it is easier for customers to accept price changes.
Efficiency can be more important than saving
Another way to increase business resilience to rising costs is to review how efficiently daily processes operate. According to survey data, 29% of Lithuanian small businesses plan to invest in business expansion or technological changes over the next 12 months, but 46% do not intend to do so, and 24% are undecided.
According to D. Tamašauskas, increasing efficiency does not necessarily mean large technological investments. Small businesses often only need to review processes, automate repetitive tasks, plan inventory more accurately, or abandon low-value activities.
“Saving has limits. If a business only reduces expenses, over time the quality of service, employee motivation, or growth opportunities may suffer. Therefore, it is important to look not only where to spend less but also where the same euro can create more value,” the expert notes.
Reserve provides time for decisions
A financial reserve allows small businesses to negotiate more calmly with suppliers, plan price changes, or make other important decisions rather than just reacting to short-term pressure.
“Resilience for small businesses does not mean that cost increases will not be painful. It means that the company has a clear picture of where it earns, where it loses margin, and what actions it will take if the situation changes. The earlier a business starts such financial hygiene, the more options it has when the environment becomes more challenging,” says D. Tamašauskas.
