The Small Business Survey paints a bleak picture and highlights inflation concerns

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Almost a third of business owners said inflation was their No. 1 concern. 1.

Main points

• Inflation topped the list of concerns for business owners in an NFIB survey.
• Hiring the right staff is also complicated 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 have seen appear to be slowing. However, inflation still tops the list of concerns in the latest National Federation of Independent Business (NFIB) survey.

Almost a third of small business owners said inflation was their biggest problem, followed by difficulty hiring good staff. Transportation, wholesale and construction businesses reported the greatest challenges in terms of hiring workers.

Glimpses of optimism, but many challenges remain

Another key indicator in NFIB research is the Small Business Optimism Index. The research tracks a number of factors, including employment plans, capital spending and inventory. Together, these indicators provide a sense of how positive (or negative) small businesses are for the future.

The November survey reflected a slight increase in optimism, but is still below the 11-month average. The optimism rate last month was 91.9, well behind the 49-year average of 98.0. To put that into context, it was 104.3 in January 2020 before the pandemic hit.

Here are some other key findings from the survey:

• Only 6% of business owners think the next three months are a good time to expand, largely due to broader economic conditions.
• 32% of business owners said inflation was their single most important problem.
• 44% of companies said they had jobs they could not fill right now.

How your small business can cope with inflation

Unfortunately, inflation can have a big impact on small businesses since 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. Cut your expenses

It can be difficult to cut costs when you’re already operating on a tight budget, but it remains one of the most important ways to survive high inflation. Comb through your budget to look for any expenses you can shave off, especially fixed monthly expenses that could drain your funds.

Take some time to consider ways to improve your operations. For example, customer service software can help 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 isn’t always easy, but it’s one many businesses have to make this year. If you must do this, be as transparent as possible about what you are doing and why. Don’t try to hide, for example, by reducing your portion sizes or using euphemisms. This can erode trust and ultimately do more harm.

Instead, be clear and honest about your price increases and try to make sure any moves you make are in line with your competitors. If you can see some way to add value alongside the price increase, that 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. Plan for best and worst case scenarios

If inflation continues to rise, how can you make sure you have enough cash to stay afloat? Try to factor in the increase in wages, materials and production costs. Think about what metrics you can track that will give you an early warning of any difficulties.

If your forecasts show that you cannot face a scenario in which prices rise even more, think about what emergency measures you can take. For example, while it can be expensive to carry a balance on a business credit card, it can see you through a short-term cash flow issue.

It can be difficult to project what situations you might face. But it’s worth mapping out what might happen and seeing what action you can take today. If there’s any way to build a business emergency fund, it can give you a cushion against inflation or other economic hardships in 2023.

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Unfortunately, there is no easy way to deal with high inflation and it is not surprising that it is a major concern for many businesses. However, if you are able to keep costs down and keep communication channels open with your customers, that’s a good start. Projecting your cash flow for different inflation scenarios can also give you insight into particular pressure points and help you avoid them.