Over the past few months, inflation has been hitting America hard. Small business owners have been affected more strongly than others. After two years of navigating through the coronavirus pandemic, small business owners are ready to get back to business-as-usual! Instead, they are facing new challenges. Here is a closer look into how small businesses are affected by inflation and new technology available to reduce its impact on your bottom-line.
Rising inflation has made headlines for the past two years but never more than over the course of March and April. The United States Bureau of Labor Statistics (BLS) reported a record-high increase in the Consumer Price Index for the year ended March 2022. By the end of last month, prices had risen by 8.5%.
This latest increase tops February’s 7.9% rise. The March rise is also the largest since December 1981.
Prices for energy and food increased more than others featured in the index. Between March 2021 and March 2022, energy prices rose by 32% on average. The main driver behind this astonishing rise was fuel oil, which went up by just over 70%. Gasoline prices rose by 48% over the same period, with electricity increasing by just over 11% and natural gas by over 20%.
Like energy costs, food prices outpaced average inflation in March. Across all food purchases, costs rose by 8.8%. Consumers most likely felt the increase more in supermarkets than restaurants. Prices for food at home grew by 10%, whilst food away from the home grew by 6.9%.
Even with the increase in the cost of energy and food removed from the Consumer Price Index, prices grew by 6.5%. The increased cost of a wide range of goods has hit families and businesses of all sizes. Small businesses have been hit especially hard.
Inflation measures how prices develop over a period. When prices for goods and services increase, the value of the dollar decreases. Put simply, it takes more dollars to buy fewer goods.
The most common time span used to determine inflation is a year. The umbrella figures are excellent indicators of the cost of living in a specific country. Analyzing individual components of the Consumer Price Index makes it easier to see what is driving inflation.
According to a survey conducted by Goldman Sachs in January 2022, most small business owners found that inflation had put pressure on their companies since September 2021. Inflation is not the only challenge these businesses are facing. Their difficulties are compounded by supply chain disruptions and a labor shortage.
Many small businesses are also still reeling from two challenging years of trading through the pandemic. Businesses had to deal with forced closures. Many faced additional costs when they had to implement Covid-19-related safety protocols and limit access to physical stores.
Out of those challenges, inflation is hitting small businesses the hardest, according to statistics from the United States Chamber of Commerce. They are dealing with several consequences, including:
Prolonged inflation creates a challenging economic environment for small businesses. Coming at the end of a two-year pandemic, it may seem insurmountable, but technology can help businesses navigate those problems.
Software and other technologies make it easier for businesses of any size to automate tasks, take charge of their financial health, and reduce costs. As more of those tools are becoming available on a subscription basis, they are affordable and accessible even for the smallest businesses.
A persistent labor shortage has hampered the development of small businesses for some time now. Recruitment can be both costly and time-consuming. If your small business is struggling to fill vacancies, consider whether those tasks could be automated.
Basic bookkeeping and financial administration tasks are one area where software can help take the pressure off your team. Automating invoicing and tracking orders and payments takes little time to set up. Once the tools are in place, your team can concentrate on more complex tasks.
As a small business owner, it is easy to think that you have a thorough grasp of your financial situation. However, truly understanding your cash flow generally requires more than your gut feel. Luckily, it does not require a degree in finance.
Modern accounting software has been designed for both business owners with little financial experience and accounting geniuses. That means this software makes it easy to get an overview of your company’s financial situation without pouring over spreadsheets for hours.
At the same time, these tools will minimize your finance team’s workload and time spent on menial tasks. Having a good idea of your company’s financial health, especially cash flow, is incredibly important when the overall economic environment is difficult. Understanding your financial situation allows you to make solid business decisions within a short amount of time.
Small businesses in the U.S. are facing a challenging economy. Inflation, as well as supply chain bottlenecks, are likely to persist whilst the war between Russia and Ukraine continues. Experts expect that the inflation rate of March 2022 marks the peak of this period of inflation, but it may not drop dramatically for months to come.
If you wish to prepare yourself for the upcoming interest rate hikes, drop us a line in the form below and a representative will reach out to you shortly to investigate whether our partners can help equip your business with the right tools to keep your business profitable.
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