How small companies are battling inflation and fears of a recession
Isabel Garcia Nevett makes adjustments to her store again.
Having weathered the pandemic and grappled with rising inflation, she is now considering how her Miami-based chocolatier, Garcia Nevett Chocolates, can weather a potential recession.
As her small business grows with corporate gifts, she worries about spending cuts.
“All the companies that we want to do business with are going to revise their budgets and stop doing as much, and that’s going to affect us directly,” said Garcia Nevett, who owns the chocolatier with her sister, Susana Garcia Nevett.
To address these concerns, the sisters plan to offer their corporate and retail customers some cheaper options in their store. They also look for new vendors and suppliers for their packaging, comparing prices, availability and quality.
Buying a larger quantity of chocolate and supplies is another way to reduce their costs. In order to increase visitor frequency, the company introduces an in-store coffee menu.
Garcia Nevett is not alone in her fears of an economic downturn.
A full 93% of small business owners are concerned that the US economy could experience a recession in the next 12 months, according to a Goldman Sachs survey. The survey of 1,533 Goldman Sachs 10,000 Small Business Voice respondents was conducted June 20-23, 2022 by Babson College and David Binder Research.
Additionally, 38% of respondents have noticed a drop in customer demand due to inflationary price increases for goods and services.
“What we found is that small companies are at the forefront of business cycles,” said Joe Wall, national director of Goldman Sachs 10,000 Small Businesses Voices.
In other words, they spot economic trends before many others do.
“They see no end to it getting better,” Wall said.
A previous May CNBC|SurveyMonkey Small Business Survey found that the vast majority of small business owners are preparing for a recession.
The last few months have brought higher prices for almost everything. Consumer prices rose 9.1% yoy in June, while wholesale prices surged 11.3%.
About 75% of small business owners in the Goldman survey said inflation had negatively impacted the health of their business. Of these, 62% increased wages relative to inflation to retain employees, and 43% were looking for new vendors or suppliers to reduce costs
They also had to pass high prices on to their customers. However, small business owners walk a fine line between managing their own rising costs and retaining their customers, with 53% increasing prices by less than 10%.
Garcia Nevett did so reluctantly when confronted with higher costs and found her customers to be understanding.
Now she’s holding her breath to see how the rest of the year goes. She’s even shelved plans for a bigger kitchen.
“We want to see how the holiday season turns out,” said Garcia Nevett. “It’s difficult to really plan for the long term these days.”
Let’s turn to Congress
Garcia Nevett is among small business owners meeting with lawmakers this week during the Goldman Sachs 10,000 Small Business Summit in Washington, DC
They plan to advocate for solutions to the challenges they face and are asking them to reauthorize the Small Business Administration for the first time in over two decades.
“It’s long overdue for the government to modernize the policy infrastructure that supports small businesses,” Wall said.
Despite all of this, business owners remain hopeful.
While 78% said the economy has deteriorated over the past three months, 65% are optimistic about their company’s financial performance this year.
“The blunt resilience of the small business community is nothing short of remarkable,” Wall said. “They are arguably the most creative gene pool in the country, capable of turning at any moment and weathering the storm.”