Inflationary times challenge everyone, and small businesses are feeling the hit as much as anyone as they have to increase their prices to adjust for the increased costs associated with raw materials, labor, and other operational expenses.
The National Federation of Independent Business’s Research Center, recently surveyed small business owners about inflation affecting their businesses.
Data Paints Bleak Picture
On Nov. 15, the NFIB data from October showed that 22 percent of small business owners identified inflation as their top concern. Sales reported by owners were down, with a net negative 17 percent, indicating higher nominal sales in the past three months, the lowest since July 2020. Job openings that were difficult to fill remained high at 43 percent, according to NFIB.
As of March 2022, the latest NFIB data shows an increase in the failure rate of private sector businesses in the U.S., rising from 18.4 percent to 20.8 percent within the first year.
These economic times call for small business owners to make changes to survive.
Expense management is always essential, but keeping track of where and how money is spent during inflation is imperative. As Finurah previously reported, it is important to consistently monitoring spending across various areas provides a clear view of expenses, helping to improve productivity and ensure accountability for decisions, allowing small business owners to consider their impact on profits.
Small business owners are people, and they make mistakes like everyone else. Some owners, for example, are failing to distinguish between strategic and non-strategic cost-cutting, protecting signature customer and employee experiences, and fiduciary requirements, Harvard Business Review reported.
What to Do
It is also important for small business owners to have a contingency plan for tough economic times, as most every aspect of their business will be affected.
“Last summer was the pinnacle of the energy crisis, with higher gasoline costs and things like that,” says Holly Wade, executive director of NFIB’s Research Center, told Entrepreneur Magazine. “That has eased off now, but labor has not, and inventory and supplies — depending on what they need — has not. For those in the restaurant industry, for instance, food is still very expensive for a lot of them. For construction, a lot of the supplies are very expensive still.”
To address labor shortages and increasing labor costs, the most effective strategy is getting more out of less, the expert says.
“It’s often hard for a small business owner to take the time to think through where they can become more efficient,” Wade said. “Maybe they can arrange their employees’ tasks to be more efficient and curb costs in that capacity.”
Small business owners can also look to automation to compensate for reduced workforce. Though this is controversial, automation not only saves on labor costs but also brings stability to a company, Harvard Business Review reported.
To keep your bottom line healthy, now is the time to examine your operation and pivot if needed.