Idea Box: Got a Plan for a Recession? High Fuel Prices? Inflation?

A strong majority of small businesses have concerns about a possible recession. Yet, at the same time, they expressed confidence about weathering one if the economy takes a downturn.

As reported by Inc. magazine, 83% of small businesses are concerned about a possible recession, but 80% are confident about enduring one. The findings come from a survey by Kabbage, an online financial technology company. The survey was conducted earlier this year and polled respondents in 13 industries.

The top reason that companies have confidence? The pandemic. Thirty-one percent said they feel their business is more resilient as a result of getting through Covid-19.

There were two core reasons behind business confidence. They might help you get through a recession – if we have one.

 

1. They Raised Prices

Between inflation reaching a 40-year-high and snarled supply chains, small businesses previously surveyed by Kabbage said they raised prices – on average by 21%. While consumers may have absorbed some of those costs, small businesses now walk a tightrope when weighing any future price increases, lest they start losing customers. Inflation is also affecting cash flow, prompting businesses to seek out lines of credit. For businesses that have either applied for a line of credit or plan to apply for one in the next six months, nearly half of them (46%) will use those funds to cover inflation costs. With the Federal Reserve on track to boost rates for the remainder of the year, borrowing costs will likely grow more expensive over time. In other words, don’t procrastinate on securing capital.

 

2. They’ve Built Brand Equity

According to Kabbage, nearly half (45%) of businesses are testing out new branding strategies compared with pre-pandemic times, especially given the focus on e-commerce these past few years. Whether businesses are testing out a new social media channel or some technology to improve customer relationship management, small businesses are increasingly viewing branding and marketing as a competitive advantage. Companies are looking at their current methods through a new lens.

Speaking of a possible recession, Rob Arnott and Campbell Harvey at Research Affiliates said in a new paper that there’s no reason the economy needs to see a downturn. However, one may already be underway – thanks to the Federal Reserve.

 “The simple fact is recessions are usually created — they don’t happen naturally,” Arnott said in an interview published by Bloomberg News. “Economic expansions don’t die of old age — they’re murdered by the Fed. And we’re seeing that happen again now.”

Arnott is advising business owners to manage risk. “If you’re spending money that you don’t need to spend, you might give some serious thought to stopping it for a little while,” he said.

A gallon of regular gas now costs – for the first time – $5 on average nationwide. That’s bad news for businesses, on many accounts. Prices have been rising for more than a year. Oil prices are nearly double what they were a year ago. A tight global supply chain – tied in part to Russia’s invasion of Ukraine – and increased demand have sent prices surging. Gasoline could be close to $6 later this summer, according to Tom Kloza, global head of energy analysis for the Oil Price Information Service.

Businesses are already fighting inflation, and the rising cost of fuel, especially diesel, means anything transported on a truck, train, or ship will likely go up in price. While freight prices are continuing to drop slowly, according to The Maritime Executive, many large importers, especially those that rely on products from overseas, are feeling the pain. Shares of retail chain Target dropped 25% last month in part because of inflationary pressures – as well as a broader shift in consumer spending from goods to services.

Experts say there are strategies to offset rising shipping costs. Evaluating data in your enterprise resource management system (ERP) is one option. The software can act as a single source of information, allowing you to manage the status of all things related to your orders, such as shipping times, vendors, cost increases, and more in a single, organized way.

Collecting vendor information using data tools can also help you find pain points in your supply chain, such as bottlenecks at ports, more quickly, suggested Walker Ryan to Inc. magazine. Walker Ryan is CEO of Parq, an Austin-based company that specializes in mitigating supply-chain risk. This strategy is especially important when products are coming from multiple sources. There may be local vendors that make, if not the exact same product, a similar version of a product, and finding a closer warehouse or manufacturer can help lower shipping costs drastically. Nailing down those relationships now could be crucial to inflation-proofing your business and avoiding unintentional costs, said Ryan, especially as other businesses look to do the same.

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Pallet Enterprise November 2024