There is no question that the impact of inflation on small businesses has been steadily growing since the pandemic started in 2020, and it continues to have a substantial impact on small businesses. In fact, 71% of small business owners reported at least a 20% increase in costs needed to run their business so far this year.
Inflation is always happening, but we are experiencing some of the highest inflation rates since the 1980s, which has put a financial burden on the way small businesses are operating, including:
- Higher costs — The supplies and services businesses need to run are increasingly more expensive.
- Increasing prices — To combat higher costs of operation, small businesses have had to increase the prices of their goods and services. This can increase the risk of losing customers.
- Reducing expenses — Many business owners have had to cut overhead costs by reducing inventory or marketing expenses.
If you are feeling the pressures of inflation, you’re not alone. In fact, almost half of small business owners have doubled down on tracking expenses and reducing costs. For example:
- 46% are reducing their inventory
- 44% are investing in software to help track expenses
- 40% have reduced marketing costs
How Small Businesses Can Manage the Impact of Inflation
Eventually, these unusually high inflation rates will level off — until then, there are a few ways that small business owners can help soften the blow and keep the wheels turning.
In an inflation environment like this, businesses should either focus on cutting costs and staying lean or commit to growing. Two primary focus areas include saving money wherever possible (e.g., eliminating nonessential expenses and finding ways to cut costs, such as production or marketing expenses), and investing.
Investing in your business could mean applying for a small business loan or line of credit. If you take this route, there’s no reason to wait until the last minute, as interest rates are expected to continue rising in 2022. To promote growth in your business, you could invest in more advanced technology to help improve productivity and manage overhead expenses.
Raising prices for consumers tends to be one of the last decisions that small businesses want to make because it can risk the loss of customers and turn people toward competitors. However, consumers are spending more in the economy and are likely to expect this shift, so raising prices may be necessary to keep up with inflation at least through the remainder of the year.
Talk to an Expert
The entire economy is being impacted by inflation, and for small businesses, it can be particularly stressful and feel like you’re being siphoned from all sides. These tips on adjusting finances during inflation are a great starting point, but it’s always wise to speak to a professional who can guide you in constructing a detailed plan unique to your business.
At Republic Bank of Chicago, we offer loans and lines of credit for small businesses as well as expert team members who are ready to help you navigate these uncertain waters. Reach out to us today at 800-526-9127 and find additional financial tips on our website.