A Deloitte survey of Fortune 500 companies revealed that the number 1 priority for CFOs in 2022 is surprisingly employee retention. From all of the short and long term challenges out there, retaining and recruiting employees is incredibly important and difficult, but not all businesses have the same concerns.
According to the US Small Business Administration over 99% of businesses in the United States are small businesses, which employ 47% of the total workforce. While multinational corporations and large businesses have far more outreach and influence, it is impossible to ignore the incredibly important and crucial concerns of small businesses.
Small businesses are definitely concerned about employee retention, but with far fewer positions to fill and a vast range of services that may or may not be relevant for retaining employees, one category is consistently concerning for small businesses across all sectors: inflation.
The Stats
The biggest proof is the rate in which small businesses have been raising prices. According to the National Federation of Independent Business (NFIB), the proportion of companies that raised prices in February surged to a 48-year high.
In the NFIB survey report, an index of business optimism fell to the lowest level since January, 2021- not a very good economic time period to be compared with. In addition 48% of all small businesses surveyed, reported job openings that they don’t believe can be filled.
The bleak outlook doesn’t end with the NFIB survey. The US Chamber of Commerce conducted their own survey which displays the actions taken in regards to inflation concerns. Out of the companies surveyed, 67% have raised prices, 41% have reduced staff, and 39% have been forced to take out a loan. Overall, one out of every three small businesses consider inflation as their toughest challenge.
The core personal consumption expenditure (PCE) price index, which measures price gains, increased in January to a 38-year high of 5.2% compared with the previous year.
The producer price index for final demand, which measures what suppliers charge, jumped 9.7% in January from the previous year.
Effects on the Market
Small businesses are the backbone of the economy and in general try to avoid raising prices as much as possible. Whether it’s a local “Main Street” shop or a bigger service, customer loyalty and competition are aspects that these businesses do not want to harm by charging more. However, they are seeing less and less of a choice in the matter.
The combination of a big percentage (41%) that are reducing staff, and a similar amount (48%) of those that can’t fill job vacancies, creates an unhealthy balance of labor inefficiency.
What makes these stats even more worrisome is that these surveys were performed before the recent surge in gas prices. The unprecedented rate increase caused gas prices to reach highs north of $4.25. This influences every aspect of small businesses, as transportation costs and products have gone up accordingly, strongly increasing the inflation sentiment that is already deeply rooted in 2022.
Oil and gas are not the only products that are being negatively affected since the surveys were conducted. Metal and grain exports have soared after the invasion of “the breadbasket of Europe” (Ukraine), which almost completely ground their export market to a halt.
The downturn of the stock market over the past few months, after a very successful 2021, shows the general indication of the market outlook.
Effects on Financial Planning
In addition, rising prices not only create less revenue and economic challenges, but also disrupt “behind the scenes” things mostly from the CFO’s office. Budgeting, risk management, forecasting, and pricing, create additional challenges for finance teams and add pressure to a market that is already hard to predict in terms of growth and forecasts.
While this is nothing new for large businesses with established finance teams and experienced CFOs, this is oftentimes not the case for small businesses. Smaller teams that are not equipped for these challenges, or CFOs who are accustomed to rigid budgets and minimal changes, need to learn how to adapt to changes much quicker than usual.
Businesses of all sizes are hoping that inflation will finally even out and raise the economy out of the dangerous mode of price increases, shortages, and instability. Although there is little control to be had over inflation, there are steps to take in order to overcome the experience and time constraint gap that grew so quickly.
Financial automation is one of the most complete tools that can help deal with these new challenges. Whether it’s a small business dealing with multitudes of forecasts that were not needed before inflation, or a CFO with a sudden increase in manual budget entries to complete, a cloud based FP&A solution can solve these problems.
Inflation is an all encompassing problem that is creating many challenges for small businesses. It creates issues such as difficulties hiring, keeping, and paying employees, as well as transportation costs and price increases. As opposed to large businesses who’s biggest struggle is retaining employees, small businesses are struggling in many aspects and need to find ways to combat all of the side effects of inflation.
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