Inflation Causing Major Problems For Small Businesses
By: Kerry Pipes
Published: May 3rd, 2022
More than half (62%) of small business operators say inflation is having a substantial impact on their business and another third (31%) say inflation is having a moderate impact on their operations, according to a new NFIB Research Center report.
“Inflation is a new challenge for most small business owners,” said Holly Wade, executive director of NFIB’s Research Center. “Inflation has reached levels not seen for the last 40 years and is dominating business decisions for small employers across the country. Small business owners have been adjusting business practices in order to compensate for the inflation pressures resulting from supply chain disruptions, staffing shortages, and rising gas prices.”
Here are some findings from the report:
Specific costs
- Owners reported that “inventory, supplies, and materials” and fuel (gasoline, diesel, fuel oil, etc.) are the top contributing factors to higher costs in their business.
- Over three-quarters (77%) of small employers reported inventory, supplies, and materials as being a substantial contributor to higher costs, while 18% reported moderate.
- Over three-quarters (77%) of small employers reported that rising prices for fuel (gasoline, diesel, fuel oil, etc.) is a substantial contributor to higher costs.
- Labor, rent, and utilities contribute to cost pressures for many small employers, but to a lesser degree than supplies/inventory and fuel.
Absorbing costs
- The main tool small employers have to absorb inflation pressure costs is to raise prices for goods or services, passing higher input costs on to their customers.
- Eighty-six percent of small employers are increasing the price of their goods or services.
- Eighty-four percent reported experiencing lower business earnings to some degree.
- Owners have also reported reducing the quantity of the goods or services offered to help stabilize cost increases with about a fifth (21%) of small employers reporting reducing the quantity of materials or goods used to produce the final product(s) to absorb higher costs.
- Thirty-one percent of small employers are taking on debt to finance higher costs.
Prices
- Sixty-eight percent of small employers are planning to raise average selling prices in the next three months and 22% were not sure.
- Forty percent reported they would raise prices by 10% or more and about half (47%) reported between 4-9%.
- Almost three-quarters (72%) of small employers reported assessing the adequacy of their price levels of the goods or services they provide more frequently than twice a year.
- Thirty-one percent reported assessing price levels weekly, 21% monthly, and 20% every few months.
- About half (46%) of small employers have contracts with customers with fixed price agreements, making price adjustments more difficult depending on the terms of the contract.
Energy and gas costs
- Nearly all (99%) of small employers reported the recent increase in gas and fuel prices is having some degree of negative impact on their business.
- About half (48%) report it has a substantial negative impact, 35% a moderate negative impact, 16% a mild negative impact, 1% a positive impact, and 1% no impact.
- Forty-two percent of small employers characterized the cost of energy used in their business (electricity, natural gas, gasoline, and fuel oil) as one of the five largest business costs they have.
- When asked what activities business energy costs are primarily linked to, 26% said heating and/or cooling, 5% said lighting, 40% said operating vehicles, 26% said operating equipment and/or processes, and 3% said other.
You can read the full survey here.
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