Inflation Squeeze: Smart Strategies to Keep Your Small Business Thriving

Inflation Squeeze: Smart Strategies to Keep Your Small Business Thriving

Author: Kim Preheim, Senior Advisor, Small Business Banking

Whether you’re starting a new business or own a flourishing enterprise, the recent rise in inflation has not been kind to growth. After peaking at an average rate of 7% in 2021, inflation has fallen back to an average around 3% in 2024. Falling rates are a positive sign, but when compared to an average inflation rate of 2% or less as seen from 2017 through 2020, the current state of inflation remains daunting for business.

Still, there is good news on the horizon. The NFIB Small Business Optimism Index rose 2.2 points in July of 2024. Much of the newly found enthusiasm can be traced to falling inflation, as businesses remain hopeful that rates will soon fall back to pre-2021 levels.

What inflation will do in the future is difficult to predict, but American businesses are learning to adapt. Keep reading for insights and ways to continue growing your business in the face of inflationary pressures.

How Inflation Can Affect U.S. Businesses

When inflation rises, business conditions can plummet. In today’s market, rising supplier pricing is just one impact companies are facing. Forty percent of American businesses reported an increase in the cost of goods and services in 2023, stressing margins in an increasingly tight economy.

Labor costs are another concern. The average hourly wage in the U.S. rose 4% from July 2023 through the same month of 2024, making it more costly for businesses to find and employ qualified talent.

Even as businesses seek relief through borrowing, rising inflation has another curve ball to throw. In an attempt to stem escalating inflation, the Federal Reserve increased base interest rates throughout 2023, resulting in higher borrowing costs for businesses.

As inflation begins to settle at historically higher than average rates, business organizations are learning to adapt with new strategies to encourage continued growth.

Businesses Pivot in Response to High Inflation

In the face of high interest rates and an inflationary environment, businesses are taking new approaches to operations. Changing strategies are meant to drive growth in spite of inflation and to keep overall costs low.

Seeking an edge against changing economic conditions, many companies have turned to equipment rentals over capital investments. Inflation has driven double digit growth in pricing across many equipment categories. Construction equipment, for example, saw a rise in the producer price index of nearly 25% from January of 2020 through March of 2023. Renting equipment provides greater flexibility and cost advantages, helping to hedge the impact of inflation.

According to 49% of businesses, raising their own product or service pricing is necessary to combat inflationary pressures. Others find that cutting prices helps to attract new buyers, as consumers focus budgets more on necessities in a high-cost market.

Some businesses take tried and true approaches, finding advantages in attending industry specific networks or joining the local Chamber of Commerce. Establishing new businesses associations can open doors to opportunity, whether it be finding new suppliers or more lucrative markets for products and services.

Fighting Inflation, How Your Bank Can Help

When it comes to fighting inflation, banks stand with businesses at the frontline, with a range of services designed to keep the company operating at peak performance.

While some entities may be turning to equipment rentals, others find advantages in replacing aging and failing equipment with new investments. Banks like FNBO are always willing to work with business clients on financing that benefits the business and helps support growth.

Credit lines are another advantage that businesses can tap into to stem the impact of inflation, particularly when vendors don’t provide their own terms. Using credit cards, particularly those that offer cash back incentives, can also allow the business to float payments while providing a revenue boost.

In the end, cash management tools, such as those that streamline accounts receivables, help predict cash flow or improve the days sales outstanding, can boost bottom-line outcomes and help businesses find ways to thrive no matter the current economic environment.

Learn how FNBO supports small businesses.

About the Author
Kim believes that small businesses are the life blood of the local economy, making him a perfect match for his role as a Senior Advisor of Small Business Banking at FNBO. In his position, he provides deposit and lending products to help fuel individual business growth, but his approach is far more personal. With each and every customer, Kim seeks to build long-term relationships that help him to proactively serve individual needs.