How Has U.S. Inflation Affected Small Businesses from 2021 to 2023?

It’s no secret that inflation has been hitting the U.S. economy hard. Businesses and consumers alike have often found themselves a bit shellshocked at rising costs, product shortages, and the increasing number of small businesses that are shuttering their operations because they simply can’t keep up. A simple Internet search will show you articles dating all the way back to 2021 that discuss the rising effects of inflation on the U.S. small business economy. 

The numbers don’t lie. According to one study:

In 2022, 88% of small business owners reported inflation was impacting their business. 

Most small businesses have seen costs increase by 20% or more. 

As a counter to inflation, as many as 89% of small businesses increased prices. 

The Small Business Inflation Study 

Biz2Credit recently did a study known as the Small Business Inflation Study, which was designed to analyze the impact of inflation on the small business sector specifically. The study analyzed expenses and revenues of over 140,000 small businesses, dating from January 2019 through October 2022. 

Labor costs, supply chain issues, and rising gas prices are all involved in this impact. Companies that can find labor are now forced to pay more than they did in 2019, which means even smaller margins on already tight sales. Interest rates for business loans and credit are higher, making it increasingly difficult for SMBs to get relief, too. All of this is leading up to the perfect storm: it’s being predicted that as many as 2 out of 3 small businesses will close due to issues related to U.S. inflation. 

Then, you factor in the rising costs of products for the consumer, and that leads to a decline in sales that hits even harder. Consumer demand concerns are forcing many small businesses to reconsider their pricing structures and look for better ways to cut costs so that they can pass those savings onto the customer. 

Inflation impacts every industry 

It’s not just one type of business or another. The aforementioned factors of supply chain and labor issues, rising gas costs, and so forth, affects small businesses (and large companies) in all industries. To get a better idea of just how serious the inflation issue has become, let’s talk about something everyone can understand: eggs. 

That’s right, eggs. If you’ve been paying attention, these are the latest in the grocery hot seat for inflation impact. Since 2021, when the average cost of a dozen eggs was around $1.79, the cost has risen nearly 60%. Eggs now cost $4.25 per dozen, on average. In some stores, you’ll find them as high as $7 per dozen. 

Experts report that the current avian flu outbreak that has killed as many as 53 million poultry in the U.S. is largely to blame, but inflation hasn’t helped. Food prices on the whole have increased more than 10%, which is higher than the average inflation rate of 6.5% for all industries. It’s hitting everyone hard, and it’s quickly hitting home for U.S. small businesses that are trying to stay afloat. 

2023 shows some hope 

Many small businesses are hopeful that as we move into 2023, the rising cost of inflation will taper off, and things like the labor shortage and supply chain issues will continue to iron themselves out. Although things like the avian flu can’t be controlled, there are several things that can be controlled in the business world in regard to inflation, rising costs, and so forth. 

While inflation is the single-biggest challenge facing small businesses in 2023, financing and business credit are also in question. That’s because of interest rate hikes that are making rates nearly impossible for some borrowers. This is why all small businesses need to carefully evaluate whether they really need additional financing to help their business growth.

This also requires an assessment of whether the projected cash flow can support a loan or other business funding. Right now, companies are getting settled into 2023 and keeping an eye on inflation and the economy as a whole, hoping for a light at the end of the tunnel that isn’t a train. 

How small businesses can adapt 

If COVID taught businesses anything, it’s that agility and the ability to make changes on the fly are essential. The companies that were able to adapt and change to fit the new ways of the world after the pandemic are the ones that have remained. They’re also the ones that have thrived. Other SMBs are still trying to figure out how to adapt to all the uncertainty. How can you plan for “unanticipated” events? 

Fortunately, for small businesses at least, there are plenty of ways to make adjustments. Cutting costs is one option. While things are getting more expensive in some ways, there are also ways to reduce expenses. For example, you can outsource certain tasks to third-party teams so that you don’t have to rely on internal manpower. 

Pay better (if you aren’t already)

It’s an ongoing debate that’s raising a lot of conversations and questions among businesses of all sizes, but most SMBs would survive a lot longer if they were to pay just a little better. In light of the labor shortage, many companies have already increased salaries in an attempt to draw in talent. If you haven’t, now is the time. You might spend a little more on each employee, but you’ll retain more of them, saving you the average $4,700 cost of hiring a single new employee. 

Outsource calls, scheduling, and more to the team at Smith.ai 

Speaking of outsourcing, if you need someone to handle all your incoming leads, Smith.ai has the solutions. Our team of dedicated virtual receptionists can act as your 24/7 answering service so that you never miss a single lead. Plus, we can offer support for things like lead intake, appointment scheduling, and even help with your outreach campaigns to generate those leads in the first place. To learn more, schedule a consultation or reach out to hello@smith.ai. 

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