Inflation is a big problem for small businesses: Survey
A report released Thursday by B2B payment solutions company Veem says that nearly 78% of more than 800 US-based small business owners it surveyed in March have been experiencing the big pressure of inflation, compounded by the worker shortage crisis and supply chain disruptions.
According to Veem's "State of Small Business: Grappling with Inflation Pressures" quarterly report, of the 77.6% of small business owners surveyed who said they experienced inflation pressure, 32.3% said they experience it "all of the time", while 45.3% said they experience it "some of the time." The remaining 22.4% said that inflation neither applies to them nor that they've experienced it.
It's a matter of time
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But what's more revealing about the latest inflation pressure is timing. Of the 77.6% of small businesses, 41.5% said they'd experienced the pressures of inflation in the past one to three months, whereas 23.5% experienced it in the past four to six months and 10% in the past nine months. A quarter of small business owners, however, said that inflation pressures had lasted 10 to 12 months, according to the report. And that's a red flag for Veem's CEO, Marwan Forzley. "The struggle is real," he told ZDNet in an exclusive interview. Prolonged inflationary pressures are affecting small businesses across the board, from the cost of labor and cost of supply to the cost of capital. "The longer inflation drags and becomes a bigger issue, the more of an impact it'll have on the economy as well," he said.
Forzley notes that small businesses have experienced inflationary pressures in years past, but the high inflation rate -- currently 7.9% -- is raising new concerns for many of the survey respondents. Although 44.5% of small businesses owners aren't concerned over surviving the storm of inflation, 25.7% are, and 19.1% said they're uncertain if they can survive such a high inflation rate. "The general feeling is that this is going to take some time to sort out," Forzley says. In fact, 51.5% of owners surveyed said that they don't think inflation will be resolved by the end of 2022, with 30.8% uncertain when it will be resolved (only 11.6% see inflation being resolved by year-end).
Other notable highlights of the survey include:
- 31% of small business owners say supply chain issues have "somewhat" impacted their businesses, while 24% say it has "greatly" impacted business.
- 40% say the inflated cost of supplies has impacted their businesses the most, followed by gas prices at 23%.
- One third say they've cut back on business purchases to keep costs low amid high inflation.
Veem surveyed 829 US small business owners between March 1 and March 11 across a variety of industries, includingretail, hospitality, transportation, entertainment and financial services. 78% of small business owners surveyed are freelancers, solopreneurs and business owners with up to 10 additional employees. About 70% of those businesses generated revenue of less than $500,000 last year. Questions posed to small business owners included such topics as experience with inflation pressure, inflation offsetting strategies and the future outlook on the inflation cycle. Veem's quarterly "State of Small Business" report series surveys the same business owners, but the topics vary quarterly. The intent is to take a pulse of what's at the top of mind for the same data set of small business owners. This latest report concerns inflation.
A faster recovery?
While the majority of small business owners surveyed feel they're in this inflationary period for the long run, Forzley sees a faster recovery with the help of globalization and technology. "Because accessing suppliers and labor around the world has gotten so much easier lately, I do think that the recovery will go faster compared to past episodes of inflation," he says. "We live in a world that's global and interconnected, so I would leverage the world we're in to run a leaner business."
One approach Forzley suggests for small business owners is changing suppliers and hiring those that have different cost structures or alternative ways of doing things. Another approach is optimizing labor costs by hiring cheaper labor, in some cases outside of the US. That's likely to cross small business owners who feel strongly that American services and products should be made in the USA, but with the help of such technologies as Zoom, business owners can communicate and coordinate through video conferencing with a more diverse and less costly, labor force. "I can get somebody to do the same type of work for me, be it from Canada, Mexico, Europe, Philippines -- name a spot. If the person speaks English and is willing to work in my time zone and I can pay them a third of the price than I would for someone in the US, then my costs will change," Forzley says. "That world of interconnectedness, where local and global mesh together, gives an opportunity to source different suppliers, different labor, and that can help you weather the storm," he adds.