Small Business Owners Struggling with Inflation (2024)

FAQs

Small Business Owners Struggling with Inflation? ›

Twenty percent of owners reported that inflation was their single most important problem in operating their business, down three points from December and one point behind labor quality as the top problem.

How Does Inflation Affect Small Businesses? With inflation-era price increases, small businesses may see higher operational costs, supply chain disruptions, and a lower consumer demand for non-essential goods. Understanding these potential roadblocks is paramount for successfully navigating periods of inflation.

A significant chunk of U.S. small business owners say 2024 is a "make-or-break" year for them, according to fresh data that found nearly one in three are concerned their companies might not make it through the year.

Businesses may take out loans

If your cash flow becomes difficult to manage during times of inflation, you may choose to take out a loan. Small business loans are lump sums of cash provided to small businesses by lenders, to be paid back with interest over time.

What Are the Main Effects of a Recession on Businesses? Recessions cause declines in sales that can spiral as the resulting layoffs further depress demand. Credit access tends to tighten amid rising economic uncertainty, while loan delinquencies and defaults increase alongside bankruptcies.

Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

Inflation impacts businesses from a supply side: costs of materials and products increase, and it may influence costs associated with trade. Demand side is impacted too: employees might seek higher wages, and these higher costs are transferred to consumers through higher prices.

Data from the BLS shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.

Small businesses fail all the time. Gene Marks, author of The Small Business Desk Reference, says their average lifespan is about eight and a half years. According to the Small Business Administration, about 550,000 small businesses close each year.

“Our latest data shows small businesses see a positive 2024 ahead and they're taking steps, including hiring, and implementing new tools, in order to stay proactive and competitive.” Fifty percent of small businesses surveyed have plans to grow or expand their business in 2024.

Who makes money when inflation is high? ›

For example, as inflation increases, interest rates tend to go up as well. This provides financial institutions with higher returns on their Credit Cards, loans and other forms of debt. Inflation can also drive asset prices up, leading to higher profits for financial institutions that invest in such assets.

Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.

Tough economic times can be good times to start a new business. However, it takes having the right business idea, a plan, and people in your corner. Sometimes, conventional wisdom isn't very wise at all.

Companies in the business of providing tools and materials for home improvement, maintenance, and repair projects are likely to see stable or even increasing demand during a recession. So do many appliance repair service people. New home builders, though, do not get in on the action.

On the other hand, when inflation is high, consumers have more money to spend on goods and services. This can boost demand for products and services, leading to increased profits for companies and, in turn, potentially higher returns for investors who hold stocks in those companies.

In an inflationary environment, unevenly rising prices inevitably reduce the purchasing power of some consumers, and this erosion of real income is the single biggest cost of inflation. Inflation can also distort purchasing power over time for recipients and payers of fixed interest rates.

Since inflation reduces purchasing power, consumers represent the primary group who stand to lose when prices rise. That's because their money doesn't go nearly as far and allows them a limited number of goods and services they can purchase.

When inflation occurs, it often leads to slower job growth and a higher number of unemployed workers. This is because businesses may not be able to keep up with the increased cost of goods and services, leading to fewer jobs being created.