Small Businesses, Big Problems

Small businesses can offer perks that many larger companies can’t. Shutterstock

America’s small businesses can’t catch a break. After two years of shutdowns and restrictions due to the COVID-19 pandemic, they’re straining to keep up with price increases without losing their customers to larger competitors. They’re struggling to keep positions filled as competition for workers remains tough and the labor market tight. Below are troubling, broad areas in which small businesses are most under pressure today.

Many factors can interfere with a small business, including:

• Inflation

Inflation can have a significant impact on small businesses. Rising costs of goods and services are squeezing profit margins. Many small businesses have less leverage to negotiate prices than larger companies.

Inflation is pervasive and expansive. When inflation rises, many parts of the business become more expensive from an operational perspective. These cost increases can force you to delay or forgo altogether your planned expenditures even as you’re cutting everywhere that you can cut.

Hiring, expansion, new products, and other planned investments can end up being sidelined as layoffs, cost cutting, and streamlining the business become the priority.

• Reduced Business Value and Profitability

Small businesses are disadvantaged relative to their larger counterparts when it comes to absorbing price increases. Higher raw material prices, along with the higher costs of logistics, negatively impact (i.e., reduce) profit margins.

• Increased Business and Employee Costs, and Higher Operating Expenses 

Inflation disproportionately impacts small businesses due to their limited resources, thus they must absorb these rising costs. Small businesses must then resort to creative ways to remain competitive during periods of rising inflation, because they may not have the ample cash reserves available to see them through the difficult times.

Further, employees seek wage increases to offset their own inflation experiences, and thus the payroll and benefits costs go up. If the small business cannot afford wage increases, they might run into employee-retention problems leading to higher turnover. Meeting the demand for increasing compensation will mean finding other places to cut costs.

• Lowered Purchasing Power

When small-business prices of their goods and services increase, that decreases the purchasing power of our currency—along with the profits of the business. Let’s say $100 buys quantity 100 of a given item, but five years later, that same $100 can only buy 50 of that same item. That means you now effectively have 50 percent less purchasing power.

• Increased Debt on Loans

As interest rates for loans change with inflation rates, small-business interest expenses go up, decreasing profitability accordingly.

• Supply-Chain Shortages

A survey conducted by Business.org found 89 percent of reported they were compelled to raise prices to deal with inflation, while 82 percent experienced supply-chain disruption.

Access to Credit

Loans have been a challenge these past few years for various reasons.

• With higher interest rates and the closure of many regional banks, it has become more difficult for small businesses to obtain the financing they require to run their business. As more community and regional banks fail and close, many businesses have lost their main funding sources.
• Rising interest rates means borrowing has become more expensive, which can discourage small businesses from getting loans. Banks are now growing cautious, requiring more collateral and imposing stricter qualifications and covenants. Many small businesses are having a tough time maintaining an acceptable cash flow, which in turn can mean loan repayment due dates begin to slip.
• But there are strategies small businesses can adopt to navigate through these present-day difficult dire straits. One such strategy is to research nontraditional lenders such as online lending platforms, community development financial institutions, or other nontraditional sources of capital and fund-raising avenues. Taking a blunt instrument approach to reducing operational expenditures that won’t negatively impact the overall business may be painful but necessary.

Supply-Chain Issues

Resource Constraints

The Gartner Supply Chain Symposium/Xpo in Barcelona, Spain, reported the results of its surveys based upon 143 supply-chain leaders this year. Problems impacting most are listed below:

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  • Access to labor (cited by 55 percent)
  • Fixed/limited capacity (45 percent)
  • Excessive energy costs (43 percent)
  • Contribution to labor fatigue (41 percent)
  • Availability of raw materials (33 percent)
  • Commitment to greenhouse gas emission reductions (23 percent)

Logistical Issues

Small businesses today face several logistical challenges in their supply chains, such as:

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  • Labor shortages
  • Congested major ports
  • Labor and supply shortages slowing production
  • Natural disasters (hurricanes, wildfires, and tornadoes) damages infrastructure and results in transportation delays.
  • Limited resources resulting in supply-chain bottlenecks
  • Adopting new technologies that would streamline the supply-chain operation.
  • Unforeseen changes in customer demand and the requisite supply availability can lead to challenging inventory policies.

Competition From Large Corporations

Big companies, such as Amazon and Walmart, offer low prices and a range of products, resulting in a small-business competitive disadvantage. Large corporations lay claim to being small businesses-friendly, but this is little more than reputational laundering as they squeeze, crush, or acquire smaller competitors.

“They use their power as gatekeeper to reach customers as a way to extract fees and unfair terms on small businesses, yet they will still use and create PR and claim that any regulation of them would hurt small businesses because they are this platform that has enabled all these small businesses to exist,” said Sally Hubbard, director of enforcement strategy at Open Markets Institute. The institute is focused on Big Tech and is concerned about the monopolistic practices of Big Tech.

If your business needs to reach customers online, you are going to have to deal with—and utilize—the big companies like Google and Facebook, and these are the large Big Tech controllers of the internet market when it comes to advertising.

How to Survive and Thrive

Attracting scarce—and increasingly expensive—labor requires creativity. Small businesses can offer perks that many larger companies can’t—for example, a more relaxed dress code, team-building, and other small group activities, and a more personalized approach to employees’ wants and needs.

Cost cutting is always a painful and unpleasant exercise, but when business survival is at stake, it must be considered. If beyond your design, manufacturing, and sales teams you have a layer of operational overhead, that would be the place to start your efforts at cost reduction. That could entail cutting in accounting, marketing, human resources, and other operational expenditures. It could also mean outsourcing some of the functions such as payroll or IT.

Bankruptcies are increasing since 2022. Although that is a last resort, restructuring the business and its debts can mean a fresh start and sometimes a necessary choice for an increasing number of small businesses.

Finally, for some, either closing the business or starting something entirely new and different that holds promise may be your last and final strategy. But that’s okay! Sometimes we will find that the present course and trajectory simply either no longer works for us, or is too risky, and thus we must begin again!

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.