Inflation despair: 1 in 3 small businesses consider shutting down - survey
Stress, frustration, and fear. These are some of the emotions small business owners are experiencing as the rate of inflation inches closer toward double-digit percent levels. According to an announcement yesterday from the US Bureau of Labor Statistics, the rate of inflation is now 8.5% for the 12-month period that ended in March, a 0.6-point increase from February. With the rate of inflation rising month by month, "stress" and "frustration" are apt words used by many US small business owners to describe their feelings about inflation and the general economy, according to the results of a survey released today by insurtech firm NEXT Insurance.
In NEXT's small businesses survey, released today, many small business owners say they're forced to raise prices, work longer hours, and pay more for labor. Nearly 40% of the more than 1,000 small business owners surveyed said they're feeling "frustrated" or "stressed" by the state of America's workforce. Those small businesses feeling that stress and frustration tend to be very small, employing between one and 20 employees.
But the results of the survey also indicate a certain resilience among small business owners. Businesses with 20 or more employees say they're feeling significantly more optimistic (43%) than companies with nine employees or less (22%). "Small business owners may be burnt out but they're not giving up," says Nancy Parrott, senior researcher for NEXT, who told ZDNet that they're navigating through these inflation challenges just as they have with the supply chain issues and the pandemic for the past two years. Many small business owners will raise prices and take salary cuts now to deal with higher costs and pressure on employee wages, which will impact their customers. That's to be expected in the current economic environment, Parrott believes. "While it's unclear how inflation will continue to progress, we do know those small business owners are scrappy, resilient, and determined," she added.
The survey was conducted in March by NEXT, which provides insurance policies to more than 300,000 small business customers in the US. Using the getWiser platform, NEXT interviewed 1,010 US small business owners, Parrott said. All participants have at least one employee and the total sample was set to a quota so that 25% were small businesses with one to four employees, 25% were small business owners with five to nine employees, 25% with 10-20 employees, and 25% with more than 20 employees. "This quota allowed us to more deeply examine differences between business sizes," Parrott explained to ZDNet.
Key findings
Overall, the survey paints a rather pessimistic outlook for small businesses in the near future. While less than one-third of small business respondents -- 29% -- said they feel optimistic about an economic recovery in the next 12 months, 35% said they were considering shutting down their business, with 8% of those saying they've "thought about it a lot." The survey revealed four key findings:
Small business owners are burning out. The past two years have been brutal, thanks to the still menacing coronavirus pandemic which has disrupted supply chain flows and staffing. To keep their business operating, 46% of owners said they're working more hours, with 33% reporting performing duties that were typically handled by someone else. What's more, 29% of owners said they've cut their own salaries, and 35% have had to raise their prices.
Employee turnover is also adding to business burnout. Fifty-five percent of the respondents say they're experiencing about the same rate of employee turnover and 30% say it's higher. In addition, half of all businesses have experienced employee ghosting – when employees don't show up for work – with 28% saying they experience it every few months or more.
Small businesses are paying more for labor today, with the smallest businesses seeing the greatest percentage increase in wages. The survey revealed that small businesses are paying roughly $24 an hour today, that's up by almost $2 than it was pre-pandemic when the average rate was $22 per hour. During the COVID-19 pandemic, 19% of small businesses said they were paying employees $10 an hour or less, but today only 8% of small businesses said they pay their staff less than $10 an hour. What's more, businesses with fewer than five employees almost doubled the percentage of employees earning more than $21 an hour (15% vs. 27%), while small businesses with staff of at least 20 also reported "significantly increasing" the percentage of employees earning more than $21 an hour (34% to 44%) compared to pre-pandemic wages, NEXT reported in its survey.
Inflation and supply chain delays are having the greatest impact on small businesses. The survey shows that a whopping 91% of respondents reported an increase in prices. The main culprit: the increased cost of materials. Thirty-nine percent of small business owners said it has had a significant impact on them in the past six months, according to NEXT.
Tax season poses stress for some small business owners. Although nearly two-thirds (65%) of small business respondents said they felt their stress levels this tax season to be about the same as in past years, 22% said they're feeling more stressed in tax season 2022. More than half of surveyed respondents (54%) said they plan to owe about the same as in previous years, while 23% plan to owe more and 23% plan to owe less.
Other findings to note
The survey also revealed, on a geographic level, that businesses in rural areas reported less worker satisfaction than those in more populated, or urban, areas. Rural business owners interviewed say workers in their industry are more uncertain, less appreciated, less motivated, less flexible, and less content than those in urban settings.
Parrott notes that urban businesses were significantly more likely than suburban and rural businesses to say their company was "growing" as opposed to "steady" or "struggling." Businesses in suburban areas were significantly more likely than rural businesses to describe their business as "growing." "We see that business owners in rural areas are most likely to say they have been negatively impacted by 'increased cost of materials' and 'delays in receiving materials,'" she said.
Suzanne DuFore, director of research at NEXT, said in the company's announcement that the high rate of inflation is rapidly becoming a crisis for US small businesses, which operate on low-profit margins and are less flexible than larger companies. "Small businesses are often the canary in the coalmine for our economy; if they're feeling the intense stress and pressure from these major societal trends that show no signs of slowing down, it's critical for us as consumers and leaders in financial services to be ready to help them out in any way we can," she said.