The past several years have been challenging for small business owners. First, the COVID-19 pandemic caused many businesses to shut down or scale back operations, losing precious revenue and staff. Now nearly all small businesses are dealing with higher costs as inflation has become a concern.
The Consumer Price Index (CPI), which measures the prices of goods and services, increased 8.6% in May from a year ago. And the Producer Price Index (PPI), which measures the prices wholesalers pay, rose 10.8% year-over-year in May.
U.S. Small Businesses Concerned About Inflation
Inflation refers to the progressive rise in the price of goods and services over a set time period. As prices increase, consumers will purchase less. Inflation is always a factor, just at different levels. After all, your $100 in 2022 isn’t going to go nearly as far as it did in 2012 or 2002.
The Federal Reserve states that an annual inflation rate of about 2% is ideal since anything less would signify a weak economy. But, when inflation soars well above this benchmark, consumers and businesses become unduly burdened.
According to a Special Report on Inflation by the U.S. Chamber of Commerce and MetLife, 85% of small business owners report they are concerned about the impact of inflation on their business. And one-third of small business owners now rank inflation as their biggest concern.
How Inflation is Impacting Small Businesses
If inflation is such an overriding concern for small business owners, how exactly does this economic condition affect a small business? There are several small business impacts of high inflation levels:
Higher Costs
According to a recent Business.org survey, 92% of small businesses have faced rising costs since the start of the pandemic. This includes the services and supplies required to run a small business as well as many of the underlying costs.
Rising Prices
At some point, small business owners will have to raise prices to deal with inflation and rising costs. But, not all will do so immediately for fear of losing customers. According to the same survey, more than two-thirds of businesses (67%) have raised prices in response to inflation.
Overhead Cuts
Cutting overhead expenses is often a response to inflation, particularly for small businesses that try to avoid price hikes for as long as possible. Many small business owners have been forced to slash promotion costs, reduce inventory, cut staff, and look for other ways to save cash.
Tighter Profit Margins
Finally, all of these factors will often translate to tighter profit margins for small business owners. Small businesses may run into a cash flow crunch and find it more difficult to remain profitable in the short or long term.
Keep Your Small Business Cash Flow Flowing in Times of Inflation
Inflation is always challenging for small businesses. Fortunately, it’s not an economic condition that is likely to continue long-term. If your small business is looking for opportunities to generate cash flow, there are several solutions available.
CAB Capital works with businesses nationwide to provide a variety of alternative business lending solutions. While bank loans are one option, we open the door to other flexible alternatives that can deliver fast approval and funding. Contact us today to learn more.