According to the National Federation of Independent Business, inflation is now considered the number one problem small business owners are facing. A recent poll revealed 22% of small businesses rated inflation as their biggest challenge (the first time that has happened in 41 years), just outpacing labor shortages, which continues to be a close second.
In December 2021, inflation rose to its highest levels in the US since 1982.
The effects of inflation on small businesses have been significant, especially on small businesses that may have already been struggling due to the pandemic. Some of those impacts include the below factors.
A Business.org survey indicated that 92% of small business owners report that the cost of supplies or services needed to run their businesses has risen since the pandemic started. Most businesses (71% of respondents) said that those expenses have increased by 20% or more, which may substantially cut into profit margins.
The result of those higher expenses is that most small businesses (82% of respondents) said they have had to raise prices by 15-20%. Owners are rightly concerned that raising their own costs will deter customers and could have a negative impact on sales.
Owners Seek Solutions
To combat the effects of inflation, small business owners are adjusting help track/reduce expenses. According to the survey:
- 46% are reducing inventory
- 44% are purchasing software to help track business expenses
- 40% have cut marketing costs
- 29% have moved to a less expensive workspace
- 24% have hired an accountant
Unfortunately, supply chain issues can still be a major roadblock for small businesses, hampering their ability to acquire or produce products, perform services, and meet customer demand. Some businesses have had to eliminate certain product/service offerings from their lines.
A Positive Outlook
The good news is that financial experts indicate that inflation will slow during the latter half of 2022, as the Fed raises interest rates and takes other steps to fight it. Additionally, 71% of respondents saw an increase in consumer spending over the past 6 months and noted an increased commitment for consumers to shop locally.