Small business owners are reviewing their company's performance metrics and looking forward to next year, with many feeling more optimistic than ever before. The MetLife Life Index and U.S. Chamber of Commerce Small Business Index for the third quarter recorded record optimism about the future among small business owners.
However, concerns remain about managing supply chain issues related to the economy, labor market, and global events. These are the five challenges that keep small business owners up at night.
Rising inflation is not only a problem for consumers, but also one of the biggest challenges for small business owners. Inflation disproportionately affects small businesses because they have less purchasing power than their larger competitors.
“Nearly 80% of small business owners say their expenses have increased by 6% or more, according to Chase's Midyear Business Leaders Outlook,” Yahoo Finance reported. “In response to rising costs, raising product prices and cutting expenses are at the top of the list of ways entrepreneurs are trying to limit their impact.”
For many small businesses, inflation has eroded already thin profit margins. Debra Moore, founder of Mama Moore's Gourmet Popcorn, told Yahoo Finance that inflation has forced her to pay a 200% surcharge for some essential ingredients. Many businesses are turning to additional financing to fuel growth and stay afloat.
access to credit
Speaking of additional financing, a Goldman Sachs survey found that more than three-quarters of small business owners are concerned about their ability to access capital. “Just a year ago, 77% of respondents said they were confident in their access to capital. Now the tables have turned, with the same percentage citing concerns as a reason,” said Investment Banker. reported.
Credit access challenges are related to banking stress due to rising interest rates and local bank closures. Small businesses rely on relatively small banks. And this year, the failures of Silicon Valley Bank and Signature Bank left many small and medium-sized businesses without a source of funding. The closure of these local banks has put stress on the banking system as a whole, so even small business ventures that didn't patronize Silicon Valley or Signature banks are feeling the effects of this disruption.
[Read more: 7 Small Business Financing Trends to Watch in 2023]
It's hard for mom-and-pop retailers to compete for workers with Fortune 500 companies that advertise competitive pay and benefits..
Molly Burke, Capterra
increase in interest rates
According to the Small Business Index, small businesses are less concerned about rising interest rates compared to the previous quarter. Nevertheless, rising interest rates remain the biggest challenge for small businesses today.
“Rising interest rates have some in the small business community saying they are looking more seriously for loans,” wrote Thaddeus Swanek, senior writer and editor at the U.S. Chamber of Commerce. “Three in four (76%) small businesses say rising interest rates are limiting their ability to raise or raise capital for their business.Furthermore, 50% of small businesses say rising interest rates are limiting their ability to grow their business. This spike is hurting growth as they report delays in their plans.”
Inflation, rising interest rates, and access to credit are three aspects of the same problem. Small businesses struggle to get the fuel they need to grow sustainably. However, many feel that this difficulty will ease into the new year.
Hiring and employee retention
These economic pressures make it difficult for small businesses to retain top talent and continue to attract new hires. In the 2023 Q3 Small Business Index, “[o]Half of small businesses (56%) say they have difficulty meeting employee pay expectations and demands. ”
Similarly, companies looking to hire are having a hard time filling open positions. A CNN Business survey reports that small business owners are struggling to fill job openings, an issue that has been a historically high and consistent challenge since the beginning of the year.
“Small businesses with up to 1,000 employees typically have much smaller profit margins than larger companies,” explains Capterra. “It’s even harder for independent retailers to compete for workers with Fortune 500 companies that advertise competitive salaries and benefits, let alone survive the costs of layoffs in the first place. .”
Supply chain disruption
Finally, supply chain delays caused by the pandemic continue to be a challenge for some small businesses. In 2023, 23% of small businesses said supply chain issues are their top concern.
While large companies have found ways around supply chain bottlenecks, small business owners don't have the same financial flexibility. Experts say economic conditions, rising inflation and global tensions such as in Ukraine and China will continue to pose challenges to small and medium-sized business supply chains until 2024.
Small businesses that have switched to domestic suppliers are already feeling relieved. “While we may charge higher prices than our international peers, we may be able to actually get the product without much of the logistical problems that come with shipping it to the other side of the world.” reported Nav.
[Read more: Inventory Management Challenges and Tips for Small Businesses]
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