However, they have been unable to execute price markups or cost cuts due to increased pressure from labor expenses and internet competition. Suddenly, the “R-word” is dominating business headlines. Talk of a recession has taken the place of promises that the economy would soon begin to stabilize.
However, economic news and the small- to medium-sized businesses (SMBs) addressed in studies such as the most recent Main Street Health study are not new. However, current forecasts of a deeper decline provide a fresh feeling of urgency. Sixty-four percent of Main Street SMBs believe the US economy will enter a recession, with 38% believing it has already begun.
Inflation, and the attendant cost increases, is at the top of the list of Main Street SMB worries.
Over half of Main Street SMBs are already running on razor-thin margins. In October, 58% of polled SMBs reported lower profit margins than the previous year.
Unsurprisingly, this rate was greater for smaller businesses. Sixty-eight percent of businesses with less than $150,000 in annual revenue reported lower profit margins in the previous year.
Main Street SMBs have been primarily employing price increases to combat inflation, with 31% describing this as the most essential measure. The alternative, more time-consuming — but maybe more beneficial in the long run — method is cost-cutting.
To be sure, this isn’t as common as price increases. Only 11% of SMBs indicated using this as their primary approach in October (compared to 16% in July). Another 13% indicated they were focused on increasing production in October, which was the same as in July.
It’s tempting to raise profit margins exclusively through price increases. However, with more than 60% of consumers living paycheck to paycheck, customers’ willingness to pay is limited. Manufacturing expenses might potentially undermine such profits if the economic troubles persist as projected.