For 30.5% of small business owners, inflation is a major concern. Not only that, but now small business owners are ranking it as a top priority, with nearly two-thirds or 62.5% saying they have general concerns about inflation along with rising prices.
This insightful and up-to-date data on the state of small businesses comes from SCOREThe nation’s largest source of free, expert mentoring for small businesses and a resource partner of the US Small Business Administration.
For Spring 2022 Megaphone from Main Street: Inflation and Economy In the report, SCORE asked more than 1,000 small business owners how they felt about the current economy and inflation, how turbulent economic factors have affected their profitability, and what they have done in response to protect their business.
Divided into two parts, the SCORE report looks at the economy, inflation and pricing in part one and business impact and solution in the second part. According to the SCORE survey, only 7% of small businesses are not concerned about inflation affecting their business; meaning there is a general consensus about the cost of rising goods and services.
The price increases are not just data points without real consequences. According to SCORE, “Anecdotal stories of how small businesses are grappling with inflation and rising prices are reflected in daily news stories.”
This real-world ramification is best explained by Aaron Mulherin, a SCORE client in Marion, Iowa. Mulherin says he is hit by 12-15% price increases on materials every four to six weeks. “As a result of these price increases, AM Glass Repair is forced to source materials more than six months in advance to lock in lower prices, leading to cash flow issues,” he says.
The economy, inflation and prices
The economy, inflation, and pricing affect all entrepreneurs to some degree, and running a business when any of these metrics are high or low can be challenging.
When it comes to the economy, there is little consensus as only 9.2% of small business owners feel extremely positive. The vast majority or 76.4% of entrepreneurs feel somewhat negative, neutral or somewhat positive. At the other end of the spectrum, 14.4% feel extremely negative about where the economy is now.
62.5% of entrepreneurs in general are concerned about inflation. This is split between those who keep a watchful eye and those who are deeply concerned.
On pricing and related matters, the small business owners surveyed said that not only are their customers struggling, but so are their employees. This translates into lower demand for products and services because people have less to spend. Add to that 65.7% of sellers and suppliers who are charging business owners more than they were six months ago, and the ripple effect for small businesses is deafening.
Business impact and solution
The impact of the current economic conditions on small businesses is largely negative, to say the least. The key findings in this section of the report clearly emphasize this fact.
- Nearly two-thirds (62.7%) of small business owners have seen their profits fall in the past six months, while only 15.5% recorded higher-than-expected profits.
- The drop in revenue has reduced profits for 58.6% of small business owners, while costs have increased for 59.5% of them compared to six months ago.
- Cash flow is an issue for 35.9% of small business owners due to rising costs.
- More than half (54.8%) have to raise prices to match the price increases in the market. Nearly all small business owners or 92.2% surveyed have increased prices by 5%-20%, averaging 11%.
The solution to overcome challenges
When the economy and inflation hit both customers and suppliers, price increases are expected. So the first and obvious action is to increase prices to match the market, which 54.8% of respondents do. In addition to raising prices, small business owners are also taking other measures.
According to SCORE’s report, to fight inflation and rising costs, small business owners are:
- Changing target customer – 39.6%
- Changing product mix – 28.8%
- Increase productivity by improving processes and automation – 28.2%
- Financing restructuring – 15.5%
- Labor cost reduction – 13.7%
- Renegotiate lower prices from suppliers – 11.2%
- Renegotiation of rent/office space – 8.5%
While these steps can help weather the current economic climate, small business owners should seek help from other sources. Whether it’s the nationwide network of mentors and resources SCORE provides, including: SCORE’s Resilience Hub for Small Businesseswebinars and other educational tools, it’s important to find these resources and take full advantage of what they offer.
Part-funded through a partnership agreement with the US Small Business Administration (SBA), SCORE has 10,000 volunteers ready to help. Again, these volunteers provide free mentoring, workshops, and educational services in more than 1,500 communities across the US and are here to help your small business start, grow, and prosper for years to come. Visit SCORE.org For more information.
The research
The SCORE survey was made up of truly small businesses, with 90.2% of respondents employing fewer than 10 people and 63.5% making less than $100,000 in sales.
The survey was conducted from February 11, 2022 to February 28, 2022 with 1,327 respondents. Of these, 1,199 owners who already own a business (86.4%) are a startup (8.0%) or are ending their entrepreneurial journey (5.6%).
