Just as small business hiring problems diminish, inflation rears its ugly head

Just as the pandemic began showing signs of easing, the economy was hit with the highest level of inflation in four decades. Not surprisingly, more than two in 10 small-business owners rank inflation as the most important and immediate problem they face.

The impact of inflation on small businesses also is reflected in pricing trends. The number of business owners reporting a large increase in what they paid for goods and services jumped from 28 percent in mid-August 2021 to 36 percent by mid-January of 2022. Anecdotal stories about the ways small business have struggled with inflation and rising prices are reflected in daily news reports.

SCORE, the nation’s largest network of volunteer business mentors, recently asked small-business owners how they felt about the current economy and inflation outlook, how turbulent economic factors have affected their profitability and what they have done to protect their businesses in response.

The economy, inflation and pricing

• Getting customers remains the top challenge, but cash flow, inflation and supply chain disruptions are growing concerns.
• Most business owners are worried about inflation. More than 30 percent list inflation as a top concern, and another 62.5 percent generally are concerned as they keep an eye on rising prices.
• Because of continued economic uncertainty, three out of four business owners report feeling ambivalent about the economy — either somewhat positive, somewhat negative or neutral.

Business impact and resolve

• Many small-business owners (62.7 percent) have seen their profits decline over the past six months. Only 15.5 percent reported that profits were higher than expected.
• Profits are declining because sales have fallen for 58.6 percent of small business owners surveyed, and expenses have risen for 59.5 percent, compared to six months ago.
• Vendors and suppliers are charging 65.7 percent of business owners more than they were six months ago. More than half of business owners (53.5 percent) now pay more for utilities, including gas.
• Rising costs cause cash-flow problems for one-third (36 percent) of small-business owners surveyed.
• To improve profitability, some small-business owners are seeking more-profitable clients; some are adjusting their product mix or improving technology; and most are raising prices.
• Fifty-five percent of business owners found it necessary to increase prices to match price increases in the market. All but 8 percent of those surveyed have raised prices by 5 percent to 20 percent, with an average increase of 11 percent.

These challenges have arisen just as many owners pivoted away from other problems caused by the pandemic. Hiring concerns, which ranked high in last fall’s survey, have diminished, although they have not disappeared.

“Now business owners worry about inflation, with links to increased costs for both supplies and labor,” the report said. “Global disruption and imbalance leave small-business owners uncertain and concerned about their future. As a result, business owners surveyed for this report experienced lower profits due to higher costs and lower sales.”

As usual, however, small businesses are finding ways to adapt. The majority have raised prices to respond to the market (increasing by 11 percent on average). Some business owners have shifted what and to whom they sell, with a focus on more-profitable products and customers. Others have taken advantage of automation and technology to streamline their work and increase efficiencies for a better customer experience.

“It is clear that entrepreneurs continue to be creative and tenacious,” the report concluded. “2022, on the other hand, continues to be a year of great change. At the time of this survey, the war in Ukraine had not yet started. It will be important to monitor further economic shifts and those impacts on American small businesses.”