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If you’re a small business owner, you’ve probably experienced turbulent times over the last few years.
For businesses that survived the worst of the Covid-19 pandemic’s shutdowns and supply chain problems, the economic recovery has brought back willing customers to consume.
But these days, business owners have had to contend with record inflation, rising costs of doing business and forcing customers to think twice about their spending habits.
Small business owners nearly doubled their revenue between July 2021 and July 2022, according to a new report from American Express-owned small business lender Kabbage.
However, during that time, while revenues increased by 87%, small business profits were largely stagnant and actually declined by 4%.
Why: Rising commodity costs and labor market competition in favor of workers forced SMEs to spend more to remain competitive, potentially benefiting from a significant increase in overall revenues. It eats up lucrative profits.
75% of 550 small business owners and operators surveyed by Kabbage say inflationary pressures have affected their earnings in the past year. And 56% of respondents expect him to continue to feel inflation threatened at least until the summer of 2023.
The US economy is experiencing record inflation, with the consumer price index up 8.3% over the past year. This inflationary pressure means higher costs for small business owners, who must make difficult decisions about how much to pass on to their customers without risking losing business.
The US Federal Reserve announced a rate hike on Wednesday to try to keep inflation in check, but the central bank still does not expect inflation to fall to its 2% target by 2025.
Morningstar researchers expect prices to drop by 2023, but that means businesses and consumers with higher-priced goods and services will continue for several more months.
According to Kabbage’s vice president of sales and marketing, Brett Sussman, small business owners are taking steps to “fine-tune their business practices” to combat rising costs.
According to Kabbage research, price increases are the most popular measure for business owners, with 37% saying they plan to do so. Another 22% of respondents said they plan to negotiate better deals with suppliers to cut costs.
Some companies emphasized plans to cut low-margin products and services from their offerings and focus on areas of the business that would provide the greatest return on investment.
Inflation is the economic factor on most business owners’ minds these days, but many of them are also bracing for the possibility of another recession in the US economy.
Experts point to rising inflation as a potential indicator that a recession may be looming, but economists say the economy has already slipped into another recession, but this is likely to be the case. Opinions are divided on the issue these days.
In any case, small business owners appear relatively optimistic. In his last Kabbage survey, conducted in June, 83% of his respondents said they were concerned about the possibility of a recession, while 80% said their business would be in such a recession. He said he is confident he will survive.
Part of the reason for their optimism is the pandemic. Nearly a third of respondents say that surviving the pandemic has made them more resilient, feeling better prepared to weather a major economic downturn.
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