Over the past two and a half years as we have slowly made our way out of the COVID pandemic, small businesses have had a tougher go of it than larger corporations. Small businesses have been closing at a higher rate than their larger counterparts. With an 8.5 percent inflation rate at the end of July, small businesses are struggling even more.
They have struggled to keep up with rising prices without cutting customer service or losing current clients. Maintaining profits is an ongoing challenge, and as food prices have increased to over 13 percent, consumers have started cutting back on non-essential purchases. They’re also buying more store brand products, so small business owners are finding it more difficult to set competitive prices that still allow them to maintain cash flow and cover operational costs.
A small business’s value directly relates to how well it can generate sales and keep a healthy cash flow. As a strong cash flow indicates normal business operations, more and more startups are searching for ways to streamline their operations. Increased prices have prompted many small businesses to raise prices on services and goods.
However, others are decreasing staff, and small businesses are not alone in doing so. Even larger corporations, like Ford, Stripe and Facebook, have been making staff cuts. Some organizations have begun to offer more hybrid or remote work, which is seen as a perk by many employees.
While many smaller companies still have concern over employee retention and filling empty roles, the market has started to shift in favor of employers instead of employees. Still, other companies have looked for ways to work smarter, not harder. Some organizations are using technology to streamline operations, like fleet management tools.
Fleet managers are using vehicle telematics in daily operations, as these offer real-time visibility into operations. Thanks to the help of reporting and predictive analytics, it’s possible to decrease fuel usage. Startup owners have also taken what has essentially worked out to be pay cuts.
While their profits may not have increased, they may be putting more hours into their company in the hopes of bringing in more income. Small companies in the retail industry have been hit particularly hard. A period of slow economic growth may benefit consumers, but this type of market may not be the best for retail companies.
Their growth has declined at a higher rate than the stock market index. Households now have less cash flowing in, even if they have more in savings. The last COVID-19 stimulus check was in 2019, and many people are not earning a higher income to make up for that.
While retail sales have gone up around 10 percent, much of that is due to the higher cost of goods such as gasoline, as well as higher prices. Car sales have only gone up around 1.5 percent, which is significantly lower than the rate of inflation. In the first half of this year, spending growth was only 1.5 percent, while it was almost 12 percent in the first half of 2021.
However, financial analysts hope the numbers to get better through the rest of 2022 and through next year. Increased wages are expected to be one of the biggest reasons behind cash flow improvement. Still, there are still many thriving top in demand careers, including small business ownership, so the news isn’t all bad.
In fact, many businesses stand to gain, thanks to the Inflation Reduction Act recently passed. While it has yet to become law, if it does, there are plenty of provisions for companies specializing in areas like green home building or clean energy production. Hopefully production of clean energy could double within the next decade or so.
Consumers who remodel their homes to be greener could receive tax credits, so small organizations offering these types of services will benefit. Currently, there is a one-time, $500 credit, but that could jump to a $1,200 annual credit. This will encourage multiple upgrades to take place over a matter of years. Each time, consumers will get another tax credit.
It is expected that the offered tax credits will total $14.5 billion, on top of additional home energy rebates. These rebates are designed to decrease the expense of specific projects, including solar or wind installation. The act also gives small business owners a fairer playing field by creating a minimum 15 percent corporate tax rate. This only impacts corporations that bring in more than $1 billion and already pay less than 15 percent in taxes.
