SMBs are forging ahead with business growth despite rising inflation

Nearly 88% said technology will help them be more efficient and more cost-effective, according to the Capital One Small Business survey.

Although rising inflation is the biggest challenge for small business owners in the past year, they are also feeling motivated to grow their businesses. Nine in 10 small business owners are confident their business will still be operating in the next six months, according to a new study by Capital One Small Business and partners.

SMBs reported feeling the impact of affordability challenges most sharply in the increased costs of goods and lower sale volumes, as cost-conscious consumers re-evaluate their spending habits, the study said. Despite inflationary pressures reported by 48% of respondents, SMB owners also said they feel prepared after taking proactive measures to further mitigate the negative impacts of inflation on their business.

Tapping into savings and experiencing burnout

Most SMB owners reported using their own savings to start (77%) or expand (50%) their business. Three-quarters of millennial SMB owners reported using their own savings to start their business and just over half (52%) used their savings to expand, similarly to all other small business owners.

Additionally, SMB owners reported student loan debt has negatively impacted their ability to grow their businesses. Approximately one-third of all SMB owners (30%) and millennial SMB owners (31%) who currently or previously have had student loan debt said it impacted their ability to scale or grow their business.

Running a small business in the past year has taken a toll on entrepreneurs. Nearly half (42%) of SMB owners said they have experienced burnout in the past month, with 24% reporting they are currently experiencing burnout due to “chronic stress at work that is characterized by overwhelming exhaustion, negative attitudes, or a lack of commitment with clients and dissatisfaction with job performance,’’ the study said.

Rising inflation is cause for concern among SMBs

Despite facing challenges this past year such as perceived business condition declines in their area, rising inflation, interest rate hikes and a tight labor market, the study found that SMBs remain optimistic.

Even with this confidence, nearly half of SMB owners said local business conditions are either excellent or good (43%) — down from 57% in December 2021. However, 94% of auto dealership owners say they are excellent or good.

Looking ahead, over three-quarters (77%) are concerned that inflation may negatively impact business performance in the next three months. Some 71% of SMB owners said inflation has had a negative impact on their business in the past three months, most commonly felt as an increased cost of goods and services (59%) and lower sales (23%).

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Finding talent is a challenge

When recruiting new employees, SMB owners said it has been challenging to find qualified candidates and pay them competitive wages. While 20% said it has been challenging to hire employees in the last three months, a majority (75%) have not hired any new employees in this period, according to the study.

Millennial SMB owners (26%) and dealership owners (73%) have found it slightly more challenging to hire. Of those SMB owners who have found it challenging to hire new employees, 33% cited wages and a perceived lack of qualified candidates in their geographic area (32%) as the largest hurdles.

To attract and retain new talent, 16% of SMB owners who changed their hiring practices are offering more competitive wages. Millennial SMB owners (47%) are more likely to increase their employees’ wages than other small business owners (36%), according to the study.

SMB owners across all age groups expressed confidence (76%) that they will be able to fill open positions in the next three months. Those with 51 employees or more are more likely to be confident about this (88%) than those with 50 employees or less (75%).

The survey by Capital One Small Business in partnership with Morning Consult and the NextGen Chamber of Commerce was conducted between March 25 and March 30, 2022, among 1,200 small business owners and 300 auto dealership owners. Small businesses were defined as those with total annual revenues of less than $20 million.