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Survey: the top 3 concerns for SMBs and how to cope

Melio’s brand character juggling three pie charts over a purple background.

Small business owners are focused on interest rates, inflation, and a looming recession as their three main concerns, according to a recent survey conducted by OnePoll for Melio. 

How can small and medium-sized businesses (SMBs) address these concerns? In this article, we’ll walk you through five strategies small business owners can utilize to set themselves up for success.

Clearing the fog

Being a small business owner is hard enough without carrying around a business terms dictionary. So, let’s quickly go over these three terms, what they mean, and how they affect SMBs. 

A chart indicating the top economic concerns for small business owners according to Melio's survey.

Interest rates

Interest rates, named a top concern by 61% of SMBs surveyed, represent the cost of borrowing money. When individuals or businesses borrow money, they incur interest expenses, paying a fee for the privilege of using someone else’s capital over a period of time. 

Interest rates for loans can be fixed or variable. A fixed rate means that the interest rate remains the same for the duration of the loan, so the borrower knows exactly how much they’ll be paying each month. Typically, fixed interest loans come at a higher rate. Variable interest loans, on the other hand, typically have lower rates, but are subject to shifts according to a benchmark or index that changes with the economy. 

Small businesses are particularly sensitive to changes in interest rates since they are often reliant on loans for growth and operational needs. Increased interest rates can mean higher monthly loan repayments for variable rate loans, which can put a strain on a small business’s cash flow.

Inflation

Inflation, cited by 59% of the SMBs surveyed, measures the general increase in the price of goods and services over time. 

Essentially, it reflects the decline in the purchasing power of money. For example, if 10 T-shirts would cost you $100 in the beginning of 2003, those same 10 T-shirts would be $165 by January 2023, according to the U.S. Department of Labor’s inflation calculator

While some levels of inflation are to be expected, it becomes a problem when there are sharp increases during periods of economic turmoil. 

Inflation affects small businesses in many different ways, such as higher costs for utilities, equipment, goods, and products, rent increases for physical storefronts or storage facilities, and greater transportation costs. In addition, growth plans become less feasible, profit margins are lower, and consumer sentiment is low, with people avoiding unnecessary purchases.

Recession

A recession is commonly defined in the U.S. as commonly defined in the U.S. as an economy-wide decline in economic activity over a period of at least several months. 

Symptoms of a recession include an increase in unemployment and substantial declines in output, consumption, and investment. 

Over the past year, many Americans, including 44% of the businesses we surveyed, have been concerned that the economy is headed that way. The good news?  Some experts believe that the U.S. can continue to avoid a recession.

5 strategies for small businesses to weather the economic storm

Now that we have a better understanding of these economic factors, let’s explore practical solutions and strategies for small businesses to navigate these challenges successfully.

1. Raise prices

Increasing how much your business charges for goods or services may sound like the end of the world. However, it’s often the right business move. 

We have the data to back this up. Our survey found that nearly half (48%) of respondents raised their prices by an average of 7% over the last six months. A majority among that group reported increases in both repeat business (66%) and sales (63%). An increase in new clients was reported by 56% of the businesses that increased prices.

A pie chart indicating the percentage of businesses that have increased or decreased prices, according to Melio's survey.

If you’re afraid customers will leave you due to the increase, we urge you to reconsider. It’s important to remember that, as a small business, the value you offer customers is unlikely to be the lowest price. Large companies will always have an advantage in that regard. Instead, customers likely choose your business for the personal touch, attention to detail, or flexibility you can offer. Additionally, in uncertain economic times, many of your competitors are likely raising their prices, too.

Consider creative ways to adapt your pricing. Perhaps you can switch to a monthly subscription pricing model or offer different price points for different tiers of services, such as a basic, middle, or premium package. You can also soften the blow of increasing prices by creating a loyalty program, such as a punch card. So, for example, for every 10 purchases over a certain amount, the customer gets a gift or a discount.

2. Expand your customer base

Getting more customers is a great way to shore up your business. Start by utilizing your current contacts. Don’t be shy. Ask existing customers, friends, and vendors for referrals. Consider offering promotions or discounts on future orders as an incentive. 

Additionally, don’t underestimate the power of face-to-face interactions. Attend trade shows, expos, and association events. Host a holiday party or partner with other local businesses to put on a community event to attract new potential customers. 

You can also use online tools to expand your reach, like 58% of our survey respondents did. There are many free and paid marketing tools that can help. These include social media, search engine optimization (SEO) techniques, and traditional marketing methods that can connect you with a larger audience.

3. Reexamine your offering

Shifting your focus to the things that are bringing in the most profit is a smart business strategy. Nearly half (45%) of the companies surveyed reported that they reduced the production of various goods and services to address the changes in the economy. 

Step one is to assess the profitability of your products and services. Do you have a product that’s been sitting on your shelves for months with little to no demand while another product is being snatched as soon as it arrives? 

Once you’ve determined what sells and what doesn’t, reduce production or procurement of underperforming items and focus on what sells. 

You can do a similar assessment when it comes to profit margins. Determine which products you are making more money on compared to their costs, and try to emphasize those. For example, you can put those products in a more prominent location in your store or feature them on your social media or the homepage of your website. 

Consider specializing in one specific area instead of overreaching into wider offerings. You’ll spend less money on making sure you have something for everyone, and instead create a reputation as the go-to business for your chosen niche.

4. Start selling products online

It’s time to embrace e-commerce if you haven’t already. Selling products online is a way to reach customers outside of your geographic area and can significantly increase revenue. Online marketplaces like Shopify can help you easily build and operate an e-commerce store.

5. Adopt digital tools

A little over 25% of SMBs surveyed said that they are streamlining business processes with technology in order to combat inflation. This was true across all age groups surveyed. 

Respondents were particularly interested in digitizing bookkeeping and payments, with 53% of small business owners saying they would like to increase digitization in this field. 

Three-quarters of small business owners believe that accepting forms of payments beyond cash is more important than it used to be. By accepting other forms of payment, you’re creating a more seamless shopping experience for your customers, whether they’re consumers or other businesses.

We’ve got just the thing. Online payment tools like Melio can help businesses keep track of payments, improve cash flow, offer a variety of payment methods, and even get paid faster.

Looking to the future

By implementing these strategies, small businesses can not only survive economic uncertainties but also thrive in the face of adversity. As the business landscape shifts, adaptability and strategic decision-making will be key to long-term success.

Fortunately, there is reason to be optimistic. Despite the economic hardships of the past year, 76% of small business owners feel equipped for the future.  

By being proactive and adapting to change, your small business can continue to flourish. Start today by signing up for Melio to digitize your business-to-business (B2B) payments.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.