RUNNING A BUSINESS || These are the Challenges Small Business Owners are Facing to Keep Their Doors Open
During the pandemic and the current inflation era, we’ve heard plenty of stories from employees and corporates on their struggles to deal with the changing landscape. What we haven’t heard much about are the woes of small business owners.
PRICE SENSITIVITY
With rising inputs for businesses across industries and inflation causing consumers to pull back on their spending (despite what the reports say about consumer spending still ‘going strong’, it isn’t), small business owners are faced with the challenge and decision of whether they should increase prices. Should we pass it on to the consumer? Would the consumer be willing to bear the price increase? Unless you have a patented product or something with a cult-like following, you’d be hesitant to increase prices to maintain your margins (which are more often than not single-digit percentage margins). There are plenty of substitutes for most products and services, and the rising cost of living is causing consumers to switch to cheaper alternatives.
Even if they were to increase their prices by 10 percent, it still would not cover the rising input costs they are dealing with. In late September, Statistics Canada reported that food costs have risen by an average of 10.8% year-over-year compared to August the year before. More specific cases, such as a 44..8% increase in the price of white flour, and the price of eggs more than doubling over the past year, are why bakeries are struggling to maintain their margins. And that’s just the price of ingredients; there are also calls for salary increases. The projected salary increases in Canada are 4.2%. Still, many small business employers may have to consider bigger jumps to keep their employees from leaving for a bigger pay raise at a larger company.
Small business owners face challenges on all sides to keep the doors open, yet few can afford to take days off to get a much-needed mental break.
HIRING COMPETITIVENESS
Not only are they afraid that consumers would switch to substitute goods and services due to inflation, but small business owners also feel they can’t hire the best talent. When staff shortage issues started surfacing during the pandemic, comparatively larger companies with a larger cash pile lured employees away from small businesses with big raises and benefits packages. Other workers in the hospitality industry, such as hotels and restaurants, switched to work in different industries due to the shortage of work when restaurants had to close during the pandemic. When I picked up takeout from my neighbourhood Italian restaurant before restaurants opened up for dine-in service again, there was only one chef in the kitchen and one person handling the takeout orders. This is down from the usual number of 4 waiters on the floor and full kitchen staff. You can’t blame the workers for switching to a different line of work; they also need to make a living.
Yes, restaurants and cafes are back open again. However, they’re still competing for workers, still trying to dig themselves out of debt they carried to keep the doors open during COVID, still trying to offer services that meet customer standards and still trying to make enough to stay in business.
While small business owners know they should offer living wages, other aspects of the business also demand cash flow. Going into the red to run a business isn't a sound decision because if they’re running a negative cash flow business, there would be no business at all.
SHRINKING MARGINS
Where does this leave margins? It seems that mall business owners are going into debt to keep the doors open!
We’ve been talking quite a bit about small retail business owners, but other types of businesses, like e-commerce and/or importers, selling goods online face a different set of challenges. Shipping and logistics have become a small business owner’s worse nightmare in the past few years as factories shut down in Asia, and shipping costs have skyrocketed even with extensive delays. Economic tit-for-tat policies and tariffs have further added to the burden for sellers of imported goods, and in some of these cases, sellers are operating at negative margins to get rid of inventory to manage warehousing costs while paying increased tariffs, customs and shipping to get the goods into the country.
Importers face an additional challenge to their business. Import air cargo rates have increased by 80% from January 2020 to January 2022.
Why don’t they just make the product in North America, you ask? Manufacturing plants specialize in what types of goods they can produce, and sometimes the technology doesn’t exist in the North American market yet. Or in other cases, the labour costs are still too high for companies to switch production to a local manufacturer. In another case, the specific coating technology only exists in the Asian market for a fashion designer seeking to make a specific type of rainproof outerwear.
Of course, operating with negative margins isn’t a long-term plan. Small businesses are hoping that consumer sentiment and government policies could help turn the economy around and get it out of recession (yes, we aren’t facing a slight chance of a recession, we are in one already). They’re gritting their teeth and doing what they can to survive and praying there is light at the end of the tunnel.
MENTAL HEALTH
While we’ve read plenty of articles about how companies are letting employees take as many mental health days as they need to ensure the wellness of their workforce, small business owners don’t have this liberty. They are the jack-of-all-trades for their company and are usually perceived as the fallback by their entire team.
A cafe owner shared that they witness their staff serving subpar dishes to their customers because they don’t follow the recipes. Should the owner be the one in the kitchen overseeing the quality control of each dish that goes out? When she also has to run other facets of the business, such as wholesale, hiring, recipe development, and more? Conscious of the rising costs of the business, the owner works late into the evening, heading back to the office at 10 or 11 PM to finish inventory counts, yet they do not have the flexibility to take a day off. This business owner shared that they haven’t taken a day off in the last three years. Yes, you read that right. The last three years.
You could say that she could hire more people to free up her time, but when other issues such as consumer price sensitivity and higher wages contribute to ever-slimmer margins, where will they find the extra budget to hire? Add to this the business taxes and numerous other overhead expenses associated with maintaining a storefront, they may not even have enough to give themselves a salary.
You could then say they should close the shop for a few days for a mental break. Business owners, to survive, think of each day in terms of the average revenue and/or profit generated per day, and every day they aren’t working is an opportunity loss in income, while the majority of their expenses are fixed: salaries, rent, taxes, government deductions, and the like. The joke amongst business owners is that they hate long weekends (or the popular four-day workweek) because it just means they have to work double the amount to catch up.
These are my observations of the commonalities in challenges faced by small business owners from a variety of industries. I’m sure this list isn’t extensive, and there are many other fires they are trying to put out daily. The next time you meet a small business owner, give them a pat on the back and let them know you appreciate what they’re doing to keep their business afloat during these tough times. Most of the time, they hear complaints about why service can’t be better and more timely, why they can’t pay more, and why quality has taken a hit during/after covid. Rest assured that they are doing their very best, and we should appreciate that everyone is going through a tough time adapting to the rapidly evolving economy.
