The pandemic had a huge impact on small businesses, but fortunately, they had access to Paycheck Protection Program (PPP) loans to help keep them afloat during these unprecedented times. However, now, the Federal Reserve is increasing interest rates to slow inflation and at least 70% of small business owners are expressing concern over the rising interest rates. There is an old saying: “Timing is everything.” Interest rates impact every business differently. Have you been in business for 1 year or 30 years? Did you sign a lease at the peak of the market or is your building paid for? Interest rates can significantly change the way you run your business.
Inflation impacts many elements of business including the cost of supplies, payroll (to provide livable wages to employees) and overall operations. With these higher interest rates to slow inflation, small business owners will feel the lasting impact of taking out loans during this time to cover the increase in costs.
If you are a small business owner navigating high inflation, consider:
1. Adjust your prices
Depending on your business inflation can impact your costs and have a positive or negative effect on your business. I have always been hesitant to raise prices, but you may have to. Once when I increased my pricing by about 30%, my sales went up a half million dollars in a hard time.
Research your competition and adjust competitively. My saying is: “you have to be as good or better than your competition to survive.” You must be cautious because you may lose customers, so do not be too aggressive raising your price.
2. Connecting with other local businesses
People buy from people. Developing a personal relationship goes a long way in business. Work with local companies and build mutually beneficial relationships with them. You can potentially reduce the cost of supplies that are needed to run your business by sourcing locally. Working within your local network of business experts is powerful. By building a community, you set everyone up for success. Also, be a good, ethical customer so the relationship is a two-way street. Be nice, be friendly; they may be doing you a favor which may be above and beyond their duty.
3. Hiring gig workers/subcontract workers/independent contractors
Depending on the job responsibilities you can hire independent contractors or gig workers. First you need to make sure the job description does not classify as an employee, otherwise you could be fined. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Independent contractors are self-employed. For a business owner, it saves you on federal taxes and worker’s compensation.
So, if you’re in need of a more hands-on deck but at a lower cost, think of hiring gig workers instead of full-time employees. Gig work has been made popular with apps like Uber and Grubhub, but contracted work has always been a great option for business owners! Be open to hiring freelancers, so they can set their own schedule and you can save costs on full time benefits while navigating this time of high inflation. However, do not confuse or cut corners when hiring an independent contractor. Have them fill out a W-9 and write up a contract stating the individual is a contractor. Then, at the end of the year, you will issue a 1099 instead of a W-2.
Keep everything professional when a relationship ends with an employee or contractor. Follow all the rules with employment forms, taxes and final pay. Now-a-days a disgruntled employee has lots of ways to inflict revenge on their employer. I have heard many stories that have ended with a business closing, so make sure that you end on good terms.
While inflation is high, it’s time for small businesses to adapt. It’s never a bad idea to find outside help in running your business, everyone is most likely in the same spot, and it can be a lighter amount of work for businesses to work together.
Author: Jack Diehl, the president of the Association for Entrepreneurship USA, graduated from the Rochester Institute of Technology with a bachelor’s degree in Manufacturing Engineering. His initial 10-year career included new factory set-up of Maverick missile seeker head assemblies and project engineering & procurement for Hughes Aircraft Missile Systems Group. After leaving Hughes, Jack developed an auto repair operation of 9 different auto repair centers. He was responsible for initial site selections, property development, business financing, staffing, quality control and other necessary aspects of owning and operating a successful small business for over 20 years. Originally from a rural farming community in upstate New York, Jack now lives in Tucson, AZ. His interests include domestic and international travel, motor sports and jazz music.