Almost a third of business owners said inflation was their No. 1 concern.
- Inflation topped the list of concerns for business owners in an NFIB survey.
- Hiring the right staff is also proving tricky for a number of small businesses.
- Optimism rose slightly this month, but still remains below the 49-year average.
Inflation has made life difficult for many people this year, from small business owners to families trying to put food on the table. The price increases we’ve seen appear to be slowing. All the same, inflation still topped the list of concerns in the latest survey by the National Federation of Independent Business (NFIB).
Almost a third of small business owners said inflation was their biggest problem, followed by the difficulty of hiring good staff. Transportation, wholesale, and construction businesses reported the biggest challenges in terms of hiring workers.
Glimmer of optimism, but many challenges remain
Another key indicator in the NFIB’s research is its Small Business Optimism Index. The research tracks a number of factors, including employment plans, capital outlay, and inventory. Together, these indicators give a sense of how positive (or negative) small businesses are about the future.
November’s survey reflected a slight increase in optimism, but it’s still been below average for 11 months. The optimism rate last month stood at 91.9, which is well behind the 49-year average of 98.0. To put that in context, it was 104.3 in Jan. 2020 before the pandemic hit.
Here are some other key findings from the survey:
- Only 6% of business owners think the next three months is a good time to expand, in large part because of wider economic conditions.
- 32% of business owners said inflation was their single most important problem.
- 44% of companies said they had job openings they couldn’t fill right now.
How your small business can handle inflation
Unfortunately, inflation can have an outsized impact on small businesses as they don’t have the same cushion against higher costs as larger companies. Here are some of the steps you can take to minimize the impact of inflation.
1. Reduce your expenses
It can be hard to cut costs when you’re already operating on a shoestring budget, but it remains one of the most important ways to survive high inflation. Comb through your budget to look for any expenses you might be able to shave, especially fixed monthly expenses that can drain your funds.
Carve out some time to consider ways to streamline your operations. For example, customer service software might help to both improve customer service and also reduce costs. Perhaps you can automate some of your marketing activities and reach more people with less effort.
2. Communicate with your customers, even if it’s bad news
The decision to raise prices is not always an easy one, but it’s one many businesses have had to take this year. If you need to do this, be as transparent as possible about what you’re doing and why. Don’t try to hide by, for example, shrinking the size of your portions or using euphemisms. This can erode trust and ultimately do more harm.
Instead, be clear and honest about what the price increases will be and try to make sure any moves you make are in line with your competitors. If you can see any ways to add value alongside the price increase, this might soften the blow. For example, if you don’t already have a customer loyalty program, now might be a good time to introduce one.
3. Make plans for the best and worst-case scenarios
If inflation continues to rise, how might you ensure you have enough cash on hand to stay afloat? Try to factor in increases in wages, materials, and production costs. Think about what metrics you can track that would give you an early warning of any difficulties.
If your forecasts show you couldn’t cope with a scenario in which prices rise even higher, think about what emergency measures you might be able to take. For example, while it can be expensive to run a balance on a business credit card, this might see you through a short-term cash flow issue.
It can be difficult to project what situations you might face. But it is worth mapping out what might happen and seeing what action you might be able to take today. If there’s any way you can build up a business emergency fund, it could give you a cushion against inflation or other economic difficulties in 2023.
Unfortunately, there’s no easy way to deal with high inflation and it isn’t surprising that it’s a key concern for many businesses. However, if you’re able to cut costs and keep communication channels open with your customers, that’s a good start. Projecting your cash flow for different inflation scenarios may also give you some insight into particular pressure points and help you avoid them.
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