Inflation Threatens Small Business Recovery

The American economy has been recovering from the effects of the pandemic. Unemployment is back down in the normal range after hitting a high of 15 percent in April 2020.  Small businesses have been instrumental in this recovery   Employment at private-sector firms with fewer than 50 employees is now 1.4% above its pre-pandemic level compared with larger companies that are at only .4 percent.

One of the factors for this recovery is the Paycheck Protection Program put in place at the start of the pandemic. There is, however, a news challenge that has small business owners concerned for their future – the rapidly rising rate of inflation.

The inflation rate reached a new generational high of 8.5 percent in March 2022— a level not seen since May 1981 According to the Bureau of Labor Statistics, this means U.S. workers got a functional 0.8 percent pay cut just over the course of the month.

Due to rising costs, more than one-third of small businesses expect to raise their prices to customers. In addition, even though the unemployment rate is positive for small businesses, the hiring process has become more difficult. Employees expect more in the way of benefits than before. This also affects costs and can result in price increases, contributing to inflation.

This is a major concern for many small business owners.

• 41.5% of small businesses have experienced inflationary pressure in the last 1-3 months. This is compared to 25% of small businesses who say they have experienced inflationary pressure over the last 10-12 months.
• Nearly 40% of small businesses surveyed say that they feel inflationary pressures surrounding their cost of supplies.
• 51.5% say inflationary pressure will not be resolved by the end of the year.

This survey also revealed that one-quarter of small business owners are concerned about whether their business will survive amid inflation. These are the top concerns of small business owners: 

• Increased costs
• Raised prices
• Narrower profit margins
• Reducing or changing inventory

What can a small business owner do to counteract these concerns? “Make sure that you have a crisis management plan in place and that it addresses the impact of economic-related issues and trends,” says Lawrence Merl, Senior Vice President, investments, for David Lerner Associates. “Talk to your financial advisor about practices you could put in place in the case of a depression, recession, inflation, and stagflation.”

With good planning and financial management systems in place, small business owners can weather this economic storm too.

 

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