With prices on the rise, Mindy Godding’s small company Abundance Organizing held a team meeting. Employees of the Richmond, Virginia-based company, which helps people clutter or downsize and unpack after home renovations and removals, were feeling the strain of rising costs. Paying for gas only to get to customers ’homes, sometimes up to an hour away, was eating up their paychecks.
The business immediately redistributed the budget money and gave the traveling team members $ 25 gasoline cards. But the move was only a temporary solution. Godding did not see the problem go away soon, so a few weeks later, Abundance Organizing increased service rates by 25% so that it could increase employee pay.
So far, demand for services remains high as the impact of the coronavirus pandemic diminishes, but it is unclear how long it will last after two years already severely damaged.
Inflation has skyrocketed 8.5% in the last year, the fastest annual rate of price increases since 1981. The price of gas rose almost 50% from a year ago. And the cost of groceries increases by 10%. Russia’s invasion of Ukraine exacerbated the problem, as the country was already struggling to keep up with supply chain problems and high demand during the coronavirus pandemic.
While some of the largest companies have reported record profits last year and several studies suggest that costs are rising, small businesses have felt the pressure.
Eighty percent of small business owners say their company’s financial health has suffered from inflation over the past six months, a new Goldman Sachs 10,000 Small Businesses Voices survey found. Of these, 67% have increased salaries to retain employees and 61% have increased salaries to attract new employees. Meanwhile, 60% said they have offset their cost increases by transferring them to consumers by raising prices.
The rise in energy costs, up 32% in the last year, is having a negative impact on results, said 73% of small business owners.
Overall, 91% of small business owners say that broader economic trends, such as inflation, supply chain problems, and labor force challenges, are hurting their businesses. And while the US the economy is considered strong by multiple measures, 56% of small business owners say the economy has worsened since January this year.
As small businesses face inflation, this adds to other challenges they already face. At the top of the list, hiring and retaining skilled workers remains the main challenge cited by small business owners, according to the survey, as job vacancies remain close to a record with more than 11 million at the end of February.
This is a problem Godding is facing. Abundance Organizing, which has 16 employees and a salary of between $ 15 an hour and $ 35 an hour, is actively looking to hire, but already anticipates that it will have to make changes to be competitive.
“In order for us to compete with U.S. companies, we essentially have to pay an employee $ 12,000 more,” Godding said, acknowledging some of the benefits that larger companies offer that theirs can’t cover on their own.
The situation has become a story of two recoveries, small business owners believe: 88% of respondents say they have fought in relation to the largest companies in their local communities, 42% say they lost employees to larger companies that pay more and 70% worried employees will leave their business because larger companies can offer a higher salary.
“Wage competition is intense, but I think an even more intense competition that small businesses can’t compete with is when it comes to profits,” said Joe Wall, Goldman Sachs ’national director of 10,000 Small Business Voices.
Small business owners want Congress to act: 86% believe the federal government should do more to level the playing field so that small businesses can compete better with larger businesses. Wall said, “They’re not asking for brochures, they’re asking for accessibility.” The Small Business Administration has not been re-authorized for more than 20 years, a measure that could help modernize and streamline programs.
Regarding the record profits being seen by big corporations, for small businesses, is just once again in the gut after two years already very difficult with the pandemic.
“It seems so unbalanced,” Godding said. “We’re not making that kind of profit for my company.”
And small business owners don’t expect inflation to drop anytime soon. Among respondents, only 5% believe this and supply chain challenges will be extinguished in the next six months.
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