Businesses have been fighting an uphill struggle since the outbreak began in 2000 and have faced challenges like supply chain problems and shortages of workers. As the nation is recovering, businesses face an entirely new obstacle to face, and that is the raging inflation.
In June 2022, the annual inflation rate was 9.1 percent, and there was no sign of relief.
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88% of business owners believe that inflation is currently affecting their business, as per the Bank of America 2022 Small Business Owner Report. Only 39% of respondents are optimistic that their local economy will grow, a drop from 56% in 2021.
Find out the effects of inflation on small companies.
‘Inflation Has Been Brutal’
“Inflation has been a snare to my small-scale company,” said Tom Monson, the owner of Monson Lawn & Landscaping. As a landscaping expert, his equipment operates on gas, which is now prohibitive.
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“I’d want to get an upgrade to electric vehicles. However, they’re not available due to the lack of chip,” Monson said. “The ones that are on the market are way too expensive.”
The man added that his income doesn’t stretch as far as it did in the past.
Tim Prescott, founder of the auto service company Certainly Cars, has had similar experiences. He also operates an auto detailing mobile and tire service on Long Island.
“Inflation has reached a point that I’ll need to cut my business down or increase prices significantly,” he said,
“with one option, you could cost me a significant amount in business.”
The Cost of Raising Prices
The rising gas costs have made running a mobile-based business complex, and the prices for supplies like waxes and cleaning products are rising. Prescott also offered his employees an increase in pay that is adjusted for inflation this year. Prescott estimates his total expenses are around 25% higher than last year with the additional costs of fuel, materials, and labor.
“We’ve already cut down on the area we service to cut down on fuel costs,” he said. “We’ve tried to avoid increasing prices
The Impact of Inflation on Small Businesses
to the extent we could, however, our margins have been slashed during the summer, and we had to raise prices around 10 percent.”
He is concerned that bringing prices to a higher level will lead him to lose many customers, as the services aren’t considered necessary.
Ely Khakshouri, the company’s CEO that makes outdoor gear, Retrospec, said inflation was top of the list for anyone operating a business today.
“Over the past few months,” he said, “we’ve seen an explosion in growth that has led us to build a bigger team, as well as new warehouse and office spaces.”
In actuality, the business has grown from 30 to over 80 employees between the years 2020 to 2021. The company leased a 200,000-square-foot distribution facility in 2020 and bought a new office for its corporate headquarters in Culver City in 2021.
Keeping Expenses Down
In the current year, when the company is confronted with the ever-growing issue of rising costs, Khakshouri said they’re focusing on increasing their capacity with technological innovation and operational efficiency. For instance, a new management tool for warehouses, for example, has helped boost productivity by 30 percent, while storage capacity increased by 15% without putting the burden on additional costs.
The firm is doing all it can to reduce expenses.
“Leveraging external resources like agencies, freelancers, and third-party logistics has helped keep our fixed costs down,” Khakshouri said. “While the rise in inflation has driven our costs for products but the dollar is currently at its highest ever in recent times, and we’ve leveraged that as well as lower prices of commodities to negotiate efficiently with our suppliers from overseas.”