When it comes to inflation, a lot of ink has been spilled on family budgets. But two recent reports document how small businesses are also being hit hard by rising prices and interest rates, and how they’re having to reinvent the way they operate to stay afloat.
“High inflation has created challenges not only for consumers, but also for businesses across the country,” U.S. Census Bureau statistician Keith Savage wrote in the Bureau’s October 2023 report. These modest businesses, often with only a handful of employees, struggled with rising costs of supplies and labor in addition to borrowing costs.
The main reason they endure is their ability to change over time, according to a new survey. “Despite the challenges posed by inflation and interest rates, small business owners are adapting to the current economic climate and demonstrating impressive flexibility and resilience,” said Tomer Barel, president of the B2B payments service, in a press release for the survey.
Indeed, despite widespread concerns about inflation and high interest rates, a majority of small business owners say they feel prepared to weather the coming economic headwinds, according to a survey released by Melio in November 2023.
The U.S. Small Business Administration reports that the nation has 33 million small businesses that make up nearly half of the private sector workforce, making these businesses the backbone of the American economy.
How small business owners are coping with inflation
Since COVID hit in 2020, small businesses have been forced to make a number of significant changes to weather the economic storms. But Melio’s survey found that four strategies in particular help small businesses stay afloat.
- Use of resources: More than 6 in 10 business owners told Melio they’ve had to tap into business savings accounts or take out a small business loan so far this year.
- Increase your own prices: Half of businesses have increased their prices to cover rising labor or supply costs, with many reporting price increases of 7% in the past six months.
- Changing the menu: If a product or service is too expensive to offer, one solution is simply to call the area. About 45% of enterprises said that they are reducing the production of certain goods or services.
- More digital: Increasing their online presence has helped many businesses reach their customers, with 58% of respondents saying they increased their digital presence in the past year – in part to be able to accept more forms of payment other than cash.
Melio’s survey was based on 1,000 responses from small business owners and was conducted in September.
Its key findings highlight that small business owners have recently started to feel more optimistic. The finding is in line with Census data showing that small businesses have experienced fewer supply chain disruptions in recent weeks and are finally benefiting from reduced supplier spending.
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