With prices rising, Abundance Organizing, Mindy Godding’s small business, organized a team meeting. Employees at the Richmond, Va.-based company, which helps people declutter or downsize and unpack after renovations and moves, were feeling the pressure of soaring costs. Paying for gas just to get to customers’ homes — sometimes up to an hour’s drive away — was eating away at their paychecks.
The company immediately reallocated the money back into the budget and gave traveling team members $25 gas cards. But the move was only a temporary solution. Godding didn’t see the problem go away any time soon, so a few weeks later Abundance Organizing raised service rates by 25% so they could raise employee salaries.
So far, demand for services remains high as the impact of the coronavirus pandemic recedes – but it’s unclear how long that will last after two already bumpy years.
Inflation has soared 8.5% over the past year, the fastest annual rate of price increases since 1981. Gasoline prices are up nearly 50% from a year ago a year. And the cost of groceries has increased by 10%. Russia’s invasion of Ukraine exacerbated the problem as the country was already struggling to cope with high demand and supply chain issues during the coronavirus pandemic.
While some of the larger companies have reportedand several studies suggest that it drives up costs, small businesses are feeling the pressure.
80% of small business owners say their business’ financial health has suffered from inflation over the past six months, according to a new Goldman Sachs 10,000 Small Businesses Voices survey. Of these, 67% increased their salaries to retain employees and 61% increased their salaries to attract new employees. Meanwhile, 60% said they had offset their cost increases by passing them on to consumers through higher prices.
According to 73% of small business owners, rising energy costs – up 32% overall over the past year – are negatively impacting bottom line results.
Overall, 91% of small business owners say broader economic trends, such as inflation, supply chain issues and labor issues, are hurting their business. And while the United Statesby several measures, 56% of small business owners say the economy has deteriorated since January of this year.
As small businesses grapple with inflation, this adds to other challenges they already face. Topping the list, hiring and retaining skilled workers remains the top challenge cited by small business owners, according to the survey, as job openings remain near a record high with more than 11 million at the end of February.
This is a problem that Godding faces. Abundance Organizing — which has 16 employees and wages that range from $15 to $35 an hour — is actively looking to hire, but already anticipates it will need to make changes to compete.
“For us to compete with corporate America, we basically have to pay an employee $12,000 more,” Godding said, acknowledging some of the perks that big business offers that his alone cannot cover.
The situation has become a two-time story, according to small business owners: 88% of respondents say they have struggled with larger businesses in their local communities, with 42% saying they have lost employees to larger companies who pay more and 70% worried employees will leave their company because larger companies can offer higher salaries.
“Competition on wages is intense, but I think competition that’s even more intense and that small businesses just can’t compete on is about benefits,” said Joe Wall, national director of 10,000 Small Business Voices. from Goldman Sachs.
Small business owners want Congress to act: 86% believe the federal government should do more to level the playing field so that small businesses are better able to compete with big business. Wall said, “They’re not asking for handouts, they’re asking for accessibility.” The Small Business Administration has not been reauthorized in more than 20 years, a move that could help modernize and streamline programs.
Regarding theto be seen by big business, for small business it’s just another punch after two already very trying years with the pandemic.
“It seems so unbalanced,” Godding said. “We don’t make that kind of profit in my business.”
And small business owners don’t expect inflation to come down anytime soon. Of those surveyed, only 5% believe so and supply chain challenges will ease in the next six months.