How Inflation is Affecting Small Made in USA Businesses

Covid-19 introduced countless issues and disruptions for small businesses, including labor shortages, supply chain bottlenecks, and inflation across expense categories such as energy and food products.

With additional pressure coming from the war in Ukraine and related economic sanctions, prices continue to balloon for American small business owners. To meet this particular challenge, it’s important to understand how today’s historical inflation affects small businesses.

The Small Picture Affects The Big Picture

While inflation tends to be discussed in sweeping terms, some businesses will be more affected at different times and to varying degrees than other businesses. For manufacturers of goods, supply chain issues are a major inflationary culprit, as delays in meeting demand increase the business costs of certain components for products that might otherwise be ready to ship.

But even businesses that may not be immediately or directly impacted by rising inventory costs are often affected by the overall inflation of the cost of goods.

For example, a business that isn’t directly impacted by inflation at the moment still needs to compete in today’s hot job market. To attract or retain labor talent that other companies are often actively courting, the business may need to raise wages or turn to other methods to stay competitive, reducing revenue and negatively impacting the business.

The Short Term: Small Businesses Are Raising Prices

The number of U.S. small business owners who increased prices to offset inflating expenses rose to 61% in January of 2022 – the biggest change in nearly three decades. With labor, inventory, and supply costs continuing to increase, it’s been the only way for many business owners to keep up in the short term.

So far in 2022, despite the challenges presented by COVID-19, and even with fast-rising gas and food prices, consumers are mostly still spending at normal rates. That part, at least, is good news.

But this doesn’t mean continuing to manage inflation has been easy for small business owners, who can be more vulnerable to big shifts in expenses or the labor force than large corporations.

Small Businesses Evolve to Meet The Moment

In recent years, small business owners didn’t have to worry much about inflation, which remained consistently low. However, a small business report from Goldman Sachs released in the last months found that nearly 3 in every 4 of 10,000 business owners surveyed reported that they’re suffering adverse financial health due to inflation.

Inflation is often top-of-mind for small businesses in the U.S., even as they continue to wait for the (not-unrelated) challenges of increased labor costs and supply-chain delays that continue to require more time to balance out.

For many small business owners, this has meant taking yet another hard look at their offerings and structures, just as they had done when the coronavirus first peaked in the U.S.They’ve adapted by creating new products and services or by making changes to existing offerings.

In that same Goldman Sachs survey, many business owners also indicated that they support additional federal, state, and local investment while navigating these trying times. However, with COVID-19 receding at the moment across most of the country, there’s currently no indication that more of this type of support is coming in quite the same way as before.

Some experts worry that continued inflation might drive the U.S. back into economic recession. Whether this happens or not, small business owners might be left feeling like they’re on their own to solve all of the above challenges.

Domestic Reinvestment Might Be The Next Big Hope

After innovation or adaptation on a fundamental level, the next best hope for small business owners in the U.S. might be to take stock and consider how to refocus (or double-down on) domestic and/or hyperlocal sourcing for various business needs.

Selling and buying local reduces complexity, often resulting in lower operating and/or inventory costs. The value of relationship-building with your local communities as an employer also should not be discounted, even in the face of foreign labor costs that might look better “on paper,” but don’t take into account something like the more quick-to-rise rates of 1099 contractors compared to W-2 workers.

The Answer to Inflation May Be Hiding Inside the Question

An increase in domestic spending for your business’s inventory or labor can result in (eventual) decreased costs to help your bottom line and lowered dependence on price increases or innovation alone to help navigate this uncertain inflationary time.

Finally, when concentrating your investments and your service domestically, there’s also a great potential upside in improving your reputation as a business owner.

Despite globalization continuing to present challenges both domestically and abroad as well as adverse conditions created by the pandemic and other international affairs, through localizing more of their operations and/or inventory, American small businesses can provide a great example here at home by contributing to the continued prosperity of the U.S. as a whole.