Inflation now the No.1 concern for small businesses

FeaturedMoneySmall Business

Written by:

 

Inflation is now the biggest threat facing U.S. small businesses, creating widespread cash flow problems. But opinions on interest rates remain divided. These are the findings of our latest Small Business Insights survey—commissioned by Intuit QuickBooks in March 2022—with input from more than 2,000 small business owners and decision-makers throughout the U.S.1

 

The new survey reveals that almost all small businesses (99%) are concerned about inflation. This is up from 97% in December and 96% in September. More than half of small businesses (52%) are now “very concerned” (see chart above). When asked whether the federal interest rate should be changed to address this, the results are more divided. More than a third (37%) support an increase while 17% want the rate to go down. The other 46% say it should remain unchanged.

______________________

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.

______________________

 

 

 

Inflation brings cash flow problems

More than two-thirds of small businesses (68%) surveyed say they have cash flow problems. This is up from 57% in December (see chart below).

Of these, more than one in five (23%) say it is a “major” problem, compared to just 12% who said the same in late 2021—when “rising costs” were already blamed as the number one cause. As a result, two in five (40%) are dipping into cash reserves to bridge the gap. A similar proportion are using business owners’ personal savings (39%) or company credit cards (38%).

 

In principle, “rising costs” and “inflation” are the same phenomenon, with the same expected response—for small businesses to raise their own prices. It is reasonable and practical for them to raise prices. The inflation forecasts implicit in the U.S. Treasury bond rates suggest that this spurt of inflation will not last very long. Prices will be higher, but not continue to rise. And we did see a slight dip in real consumption expenditures in January. At the end of April, we will see whether this continues, and get a sense of whether consumers were reacting to inflation or perhaps the widespread Omicron infections dampened their shopping.

– Susan Woodward, Sand Hill Econometrics

Consumers react by starting new businesses

Naturally, consumers are also worried about inflation—even more so than they are about the COVID-19 pandemic, according to a second survey commissioned by Quickbooks in March 2022.

The second survey, which consisted of more than 8,000 U.S. consumers with jobs,2 suggests that some small businesses could face more competition due to inflation. This is because more than one in five consumers (22%) are currently considering starting a business to help shore up their finances. While not all may see these plans through, this is further evidence of the surge in entrepreneurial aspirations that QuickBooks first reported in December 2021.

Spending habits are changing

At the same time, almost three out of five consumers (58%) say they may be forced to cut back on spending. The first three things to go would be meals in restaurants (50%), non-essential items (44%), and spending on energy such as gas and electricity (38%).

Big-ticket items could also be hit. More than two in five (43%) report delaying or canceling vacations. A similar number (42%) are delaying large purchases such as computers and cars. Despite this, the appetite for electric vehicles is up, with 54% saying higher gas prices are making them a more attractive option. Home improvement projects, on the other hand, are on the back burner for 37% of respondents—a big change from the peak of the pandemic, when home improvement businesses had a surge in demand.

Small businesses must be online

As the previous chart shows, more than one in four consumers (29%) are shopping online more often to find lower prices.

This isn’t a new trend, of course, and small businesses know it. Our latest Small Business Insights survey1 confirms again that “increasing online sales” is the number one priority for small businesses (see chart below). More than nine out of ten (91%) say it will be important for people to be able to find or buy from their business online over the next 12 months. Even self-described “brick and mortar” businesses agree: three-quarters (75%) say they need to be accessible or selling online this year.

Cybersecurity breaches are common

The growing reliance on digital technology means small businesses need more help with cybersecurity. Overall, more than two in five (42%) say they have already experienced a cybersecurity breach. The top three most common threats come from malware, phishing, and data breaches (see chart below).

In fact, more than one in five small businesses (23%) describe cybersecurity as one of the biggest threats they currently face—ahead of low demand and just behind cash flow (see “Top 10 threats” chart, above).

Are small businesses helping to break the inflationary cycle?

The latest QuickBooks-commissioned survey of 2,000+ small businesses suggests they will be contributing less to inflation this quarter compared to the previous two.

In September 2021, 57% of small businesses said they were planning to raise prices. In December, that number was up to 63%. But today, just 43% say the same—the smallest proportion we have seen since we first published this data. We see a similar trend with pay for new hires—more on this below.

In our latest survey, we added a new question to find out how price increases affected sales volumes (the number of units sold). Just one in eight (12%) report lower sales volumes after raising prices while 45% say there was no change. The other 43% say sales volumes went up.

Labor cost pressures may be easing

In September 2021, labor costs were in the top three expenses that small businesses worried about most—but no longer. Today, the top three cost pressures come from materials, energy, and shipping costs.

Small businesses also appear less willing to offer new hires more money. Currently, as of April 2022, just one in five (19%) say they are addressing hiring challenges by increasing pay—down from 44% in December (see chart below). This isn’t due to less hunger for hiring. In fact, more than half of small businesses (52%) predict their workforce will grow over the next three months—up from 44% in December. And it isn’t because hiring is getting any easier, either. Almost half (49%) maintain that hiring is getting harder (largely unchanged since our last survey). Just 24% say it’s getting easier.

More small businesses offering employee benefits

The other side of the hiring coin, of course, is retention. There are positive signs emerging here, too. Employee retention is now at the bottom of the list of business threats, in tenth place. Likewise, the number of small businesses saying it’s getting harder to retain skilled workers has dropped from 42% in our two previous surveys to 38% today.

This may be because more small businesses are offering employee benefits such as health care. In QuickBooks’ latest survey findings, three-quarters of small businesses (75%) report that they offer benefits. In December, it was 70%. In September, it was 69%. The three most common benefits are paid sick leave, health care, and paid vacation time. In addition, 79% of small businesses say they actively promote equality, diversity, and inclusion at work—up from 70% in our previous survey.

Another retention measure is to increase pay for existing workers. Almost half of small businesses (49%) say it’s likely they will increase pay for existing workers at the next opportunity. Two in five (42%) say the same about bonuses—up from 36% in December.

Despite inflation challenges, confidence is high

The majority of small businesses remain optimistic about the economy. Almost three in five (58%) are either “somewhat” or “very” optimistic—up by four percentage points since QuickBooks’ last survey in December. However, a similar proportion (59%) are concerned the war in Ukraine could have a “somewhat” or “very” negative impact on the economy.

 

On a brighter note, most small businesses predict a bounce this summer if the pandemic recovery continues and life returns to “normal.” Almost eight out of ten (79%) say this will have a “somewhat” or “very” positive impact on their business, if it occurs. Among urban businesses, which were often harder hit by social distancing and the jump to remote work, this rises to 87%.

Omni-channel businesses are most upbeat

We’ve seen this trend repeatedly in recent years. Small businesses that can take orders online and complete them in person, or in store, have the highest levels of confidence.

Overall, the number of small businesses that predict their business will grow over the next three months is down from 70% in December to 65% as of April (see chart below). Among brick-and-mortar businesses, less than half (47%) predict growth—down from 58% in December. But among omni-channel businesses (those with fully integrated online and offline sales), almost eight out of ten (79%) predict growth over the next three months.

The message is clear. Even if you don’t sell online, you need to be there. And if you can sell online, you should. Your customers are googling more than ever to save a buck.

May is Small Business Success Month

QuickBooks and Mailchimp recently announced the launch of the second annual Small Business Success Month, with a series of events and resources to help small businesses succeed—including the next Intuit QuickBooks Small Business Insights report.

Footnotes

1. Methodology: Small Business Insights Survey, March 2022

QuickBooks commissioned Qualtrics to survey 2,031 small business owners and decision-makers ages 18+ throughout the U.S. in March 2022. Respondents’ businesses have up to 100 employees and more than $5,000 in annual revenue. Roughly one in four (29%) are brick-and-mortar businesses. The remainder describe themselves as omni-channel, multi-channel, or primarily online businesses. Almost a third (31%) are product-based businesses, more than two in five (44%) are service-based, and the remainder sell a mix of products and services. One in two (50%) are located in urban areas while the remainder are in rural or suburban locations. Percentages have been rounded to the nearest decimal place. Respondents received remuneration.

2. Methodology: Employed Consumer Insights Survey, March 2022

QuickBooks commissioned Pollfish to survey 8,002 people throughout the U.S. ages 18+ who are employed, self-employed, business owners, or have mixed incomes, with a 50:50 split between male and female respondents. Responses were collected in March 2022 via Pollfish’s audience pools and partner network using double opt-ins and random device engagement sampling methodology to ensure accurate targeting. Percentages have been rounded to the nearest decimal place. Respondents received remuneration.

Disclaimer

This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.

We provide third-party links as a convenience and for informational purposes only. Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. Intuit accepts no responsibility for the accuracy, legality, or content on these sites.

 

This article originally appeared on The QuickBooks Resource Center and was syndicated by MediaFeed.org.

More from MediaFeed:

6 ways to protect your money from inflation

 

 

Inflation has been squeezing — and infuriating — U.S. consumers for a long time now.

 

What began as an annoyance (an extra pinch at the gas pump and the grocery store) has turned into a painful reminder that budgeting and saving may be even more important than anyone ever thought. And without a plan to deal with inflation’s effects — day to day and over time — your dollars can lose purchasing power.

 

The good news is that it’s never too late to consider strategies that could protect your money from inflation, while also keeping in mind your personal financial situation, your goals, and your tolerance for risk.

 

Read on for intel on how to protect your money and yourself from inflation.

 

Related: What is wealth management?

 

nicoletaionescu / iStock

 

Wondering what inflation is exactly? In basic terms, inflation means prices are rising and your purchasing power is declining. You can’t get the goods and services you’re used to buying without paying more for them. And if your income doesn’t increase to match those higher prices — because you can’t get a pay raise that keeps up, or you’re a retiree on a fixed income — it can really impact your lifestyle.

 

The U.S. has been on a months-long run of record-setting inflation since the start of the coronavirus pandemic. And according to the U.S. Department of Labor Statistics, it’s the costs most people can’t avoid — like food, gas, and rent — that are driving the continued increase in the Consumer Price Index (the most commonly used measure of inflation).

 

It’s true that there are common causes of inflation and escalating prices aren’t uncommon, but what is happening right now is undoubtedly intense. Rates are hitting the highest numbers the U.S. has seen since the early 1980s, which means it’s the first time many consumers here have experienced inflation at this level.

 

But even a low inflation rate can erode purchasing power over the long haul. For example, according to the U.S. Inflation Calculator, if you purchased an item for $100 in 2000, that same item would have cost $150.30 in 2020 — before inflation soared. The dollar had an average inflation rate of 2.06% per year in the two decades between 2000 and 2020, producing a cumulative price increase of a whopping 50.30%.

 

That’s why preparing for inflation can be an important consideration for every consumer, whether you consider yourself a saver, a spender, an investor, or (like most people) you’re a mix of all three.

 

Recommended: Is Inflation a Good or Bad Thing for Consumers?

 

Yingko/istock

 

Needless to say, stuffing your money into a mattress or cookie jar probably isn’t the best strategy for protecting your hard-earned dollars.

 

Not only is an FDIC-insured savings account generally considered a safer place to keep your funds, but you also can earn interest on your money until you need it. Perhaps you’re saving for a down payment on a car or home, a wedding or vacation, or maybe for an unexpected expense.

 

Although most savings accounts pay minimal interest — usually not enough to counteract even low inflation rates — you’re at least earning something. And if you take time to occasionally review the interest rates various financial institutions are offering, you may be able to improve on what you’re currently getting.

 

For example, online financial institutions are more likely to offer high-yield savings accounts than traditional brick-and-mortar banks. So, if you’re comfortable with the idea of electronic banking, you may find a significantly higher annual percentage yield (APY). You also might be able to reduce or eliminate some of the fees you’re paying, which can boost your savings as well.

 

If the Federal Reserve continues to raise its benchmark interest rate in an effort to combat inflation, as it has indicated it will, you may see the rate on your current savings account slowly increase. But if it doesn’t, or if you don’t want to wait around for that to happen, it may make sense to start shopping for a smarter way to save right now.

 

Photodjo / iStock

 

Taking the time to reassess the potential earnings from your savings account can be an important step in offsetting inflation’s impact on your bottom line.

But there are other strategies you also may want to consider. Here are steps that can help you protect yourself from inflation.

 

 

Love portrait and love the world / iStock

 

It might be hard to believe when the housing market is this hot and prices are this high, but homeownership actually may help protect you from inflation.

 

If you’re a renter, you’re probably at the mercy of your landlord when it comes to how much your monthly payment could go up when it’s time to renew your lease. And during an inflationary period, your landlord may decide to raise your rent to reflect higher prices. If you decide to move, your new lease also could reflect the high inflation rate. Plus, you’ll have to go through the hassle of finding a new place and moving.

 

If you buy a house, on the other hand, you’re more likely to have a fixed monthly payment that’s locked in for the life of your mortgage. Another benefit: The value of the home you own may increase along with inflation. And if you hang onto your home until it’s paid off, you won’t have to worry about what housing prices (renting or owning) might look like in the future.

 

DepositPhotos.com

 

Especially if you’re a first-time homebuyer, you might feel more than a little overwhelmed thinking about signing off on a 30-year fixed-rate mortgage for, let’s say, $350,000.

 

It might help to take a deep breath and think about this: According to the U.S. Inflation Calculator, $350,000 in today’s dollars is equal to about $173,000 in 1992 dollars. Thirty years ago, somebody thought $173,000 was a crazy-high amount of money for a house. Now, it sounds like a bargain. It often takes us by surprise how prices (and salaries) do rise over the years.

 

If you’re borrowing money for 30 years (the most common mortgage term) at a competitive interest rate — and you aren’t paying more than the home’s appraised value — inflation could work for you. That’s because the value of money, including debt, declines as the inflation rate rises. So, the inflation-adjusted value of your mortgage payments goes down as inflation and your property value go up.

 

depositphotos.com

 

If you have the room and a knack for bargain-hunting, it may make sense to build up a supply of the kinds of goods that could be affected by inflationary prices. This is especially those items that are often linked to shortages.

 

Unfortunately, it isn’t really feasible for most folks to stockpile gasoline. But your backup supply might include canned goods, baby food, paper towels, toilet paper, and other necessities that you find on sale or can buy for less in bulk.

 

Keep in mind, though, that if you pay for those goods with a high-interest credit card and you don’t pay off the balance each month, you might not see any savings. (Which is another good reason to keep some money stashed in your checking and savings account to pay for such purchases.)

 

Valeriy_G/istockphoto

 

The price of durable goods (products that typically last at least three years) also can be affected by shortages and increased consumer demand.

 

If you need a new car, for example, and prices seem high for the make or model you want, it may be tempting to purchase a lower-quality replacement. Keep in mind, though, that over the long term, you could end up spending more on repairs than you would have if you bought the better brand. Or the less expensive make may not last as long as a better car would have.

 

You may find it’s a smarter strategy to get an auto loan and invest in the higher-priced car from the start.

 

martin-dm

 

household budget can be a helpful tool any time, but it could be particularly useful when prices are soaring.

 

Even if you already have a budget, you may want to reevaluate your spending in categories that are or could be vulnerable to inflation, such as food, transportation, healthcare, and utilities. And you may have to look for categories you can spend less on (at least temporarily), such as entertainment, dining out, clothing, and vacations.

 

If you’ve put most of your bills on autopay, you also can check for “expense creep” on things like cable and Wi-Fi, subscription services, and utilities.

 

Sticking to a budget could help you avoid touching your emergency savings when times are tight—or, worse, overusing high-interest credit cards.

 

Once you’ve established a savings account (hopefully a high-interest one) for your emergency fund and other short-term expenses, you may want to look at investing as another strategy to combat inflation.

 

Though it carries more risk than keeping your money in a high-yield savings account, investing in stocks, mutual funds, or exchange-traded funds (ETFs) can help you grow your money for the future.

 

Once again, let’s go back 30 years to get some perspective. According to Officialdata.org’s S&P 500 data calculator, if you had invested $100 in the S&P 500 at the beginning of 1992, you’d come out with about $1,974.20 at the end of 2022 (assuming you reinvested all dividends). That’s a return on investment of 1,874.20%, or 10.42% per year. Even after adjusting for inflation, you’d be looking at a 7.87% return per year — which is better than most alternatives. Which all goes to say that investing may be a very good hedge against inflation.

 

nortonrsx

 

What is the best way to protect against inflation?

The best approach may be to prepare for the worst while hoping it doesn’t happen. This means finding ways to get the most for your money as a saver (perhaps with a savings account that pays more in interest), spender (adopting a budget and savvy buying tactics), and investor (with investments that keep growing your money over time).

Where should I put my money to combat inflation?

You may want to start by shopping for a savings account that offers a higher APY and/or lower fees. That way, you won’t be slowly losing money as your cash sits in the bank. Another option is to invest it, which is riskier but may yield you a higher return.

How can I prepare for hyperinflation?

You can use many of the same tactics to protect against runaway or hyperinflation as you would for high inflation. You might decide to stockpile goods now, while your money has value, for example. You may choose to buy a car or make another important purchase sooner rather than later. You also can evaluate what expenditures are “needs” vs. “wants” and budget appropriately. Also try not to panic — which can lead to poor decision-making.

 

RossHelen/ iStock

 

To younger consumers, today’s high inflation may seem like a new phenomenon. But inflation always has been — and always will be — a challenge.

 

While you probably can’t avoid inflation completely, with proactive planning, you may be able to blunt its impact on your day-to-day and long-term finances. If you haven’t already, you may want to review your savings, spending, and investing strategies to be sure you’re getting the most you can for your money.

 

Learn More:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

 

DepositPhotos.com

 

 

Damir Khabirov / iStock

 

Featured Image Credit: DepositPhotos.com.

AlertMe