Small business owners are reading the economic tea leaves and have concerns about the potential signs of weakness that will affect their businesses. As measured by the Consumer Price Index, inflation rose 9.1% in June, the largest jump since December 1981. Gas prices are up 53% from this time last year. To combat inflation last month, the Federal Reserve Board issued the single largest increase in its benchmark interest rate in 28 years, three-quarters of a percentage point.
Large swings in economic factors directly impact small businesses' daily operations, making it more challenging for them to absorb the impact, plan for the future, and continue to show growth. Small business owners are worried.
This sentiment, confirmed in the new State of Small Business report by Veem, found that 49% of small business owners anticipate the US will face a recession by the end of this year. "There is high anxiety at the moment about the amount of uncertainty coming in the second half of the year," Veem CEO, Marwan Forzley, told ZDNet. Veem is a global payment processing automation service for businesses, operating in more than 100 countries and handling 80 different currencies.
Veem surveyed 468 small businesses in the US and Canada during the week of May 31 through June 8, 2022. The businesses polled represent the heart of Main Street, with 69% of respondents having less than 10 employees and more than half generating less than $500,000 in revenue last year.
Martin and Kamaca Champion can relate to these concerns firsthand. They own and operate Miss Purl, a retail yarn boutique in Chicago, IL,that offers training classes for fiber enthusiasts. Being a new yarn store -- the store opened in September 2021 -- has inherent challenges. A potential recession would add more strain to a business still overcoming startup hurdles. "Still being in startup mode, we're challenged by the increase in shipping costs. As [our suppliers'] costs increase for raw materials, that cuts into my margins. Our customer's disposable income is getting squeezed. One of our concerns is how can we be more creative in getting customers to shop," Kamaca Champion told ZDNet.
In addition to recession fears, the small business owners share the following concerns as summarized in their press release:
77% are worried about the impact of rising interest rates.
63% are concerned about their business' economic health due to rising inflation and wider macroeconomic factors.
70% believe future planning will be much more difficult in the current economic climate.
51% of respondents are still challenged to fill positions.
60% don't think the inflation issues will be resolved before the end of 2022.
Bright spots in the economic data
Experts urge calm and point out that a recession is not imminent. Holly Wade, Executive Director of the National Federation of Independent Business Research Center, recognizes that even though small business owners may be bracing for the possibility of economic deterioration, they are still looking to hire for open positions. "While they are anticipating a slowdown, they are still frustrated that they are losing sales opportunities because they aren't fully staffed," she told ZDNet.
The recent Labor Department jobs report shows that US employers added 372,000 jobs in June, which was higher than expected. The unemployment rate remained steady at historic lows of 3.6%. Gas prices are slowly returning to earth from the average highs of over $5 per gallon we saw in June. The national average is currently $4.86 per gallon.
The economy is showing signs of hope.
"You can see the trends in the data. It's difficult to forecast the impact with any certainty, and small businesses are feeling that. Once the shifts happen, they'll adjust business operations like they always do," Wade added.
Positioning your small business to weather a potential storm
Inflation numbers for June are due out this week. The rate is expected to hold steady. Gas prices, one of the main pain points for small business owners, are ticking down slightly. These indicators represent small rays of sunshine that can help alleviate some of the anxiety brewing on Main Street.
Kiev Brownlee is a small business owner with 22 years under his belt. He appreciates the difficulties that operating in this climate of uncertainty presents. Brownlee owns an IT consulting firm, KB Consulting Services, Inc., and a used car dealership, Wisdom Auto Group, in Calumet Park, IL. "The price at the pump affects both of my businesses," he shared with ZDNet. Whether from decreased demand for office IT infrastructure setup due to increasing remote work options or smaller, more fuel-efficient car purchases, changes in gas prices directly impact his bottom line.
To address the challenges, he's pivoting to generating revenue sources from additional offerings like cyber security management or mechanical services at the dealership. "I have an optimistic view on the future of my business growth," Brownlee shared.
Small business owners are often forced to be resilient and nimble. "We are living in a global, interconnected world. The world is more open. Leverage that to your advantage by having access to more resources," Forzley suggests.
The NFIB offers resources to help small businesses and notes the following choices small businesses are making to prepare in this uncertain economic climate:
Develop a business relationship with your small business lending officer. Talk through funding scenarios available and understand resources that you can access quickly.
Reassess excess inventory needs. Conservatively estimate the amount of excess inventory you need to maintain on hand to run your business effectively.
Consider a pause on capital spending or expansion and carefully think through those plans.