Owning or starting a small business is challenging, even in the best financial times. Still, in the uncertain economy of the past few years, small business owners face even more challenges as the nation continues to recover from the fallout of a global pandemic that impacted businesses of all types and sizes. Despite these challenges, there are also market conditions in which savvy business owners can find an opportunity to thrive.
Workforce issues have been, and will likely continue to be, hurdles to overcome in 2023. The pandemic served as a flashpoint for what’s become known as the Great Resignation, where many workers were willing to leave one job to try others — sometimes in quick succession — for better pay or conditions. That means there is an increased cost to attain and retain labor, and if you are fortunate enough to find quality talent, you must be willing to pay more today than you would have paid in 2019. In fact, according to the U.S. Bureau of Economic Analysis, wage growth has averaged 6.2% since 1960 but reached an all-time high of 14.8% in April 2021.
The pandemic also wreaked havoc on supply chains worldwide, driving up the cost of goods. The Bureau of Labor Statistics recently reported that consumer prices are up 9.1% over the year ended June 2022, the most significant increase in 40 years. These increases will continue to squeeze small business owners’ margins, making it more difficult to be profitable.
Rising interest rates are also affecting small business owners. Higher rates increase borrowing costs and may decrease consumers’ discretionary spending power. Small business owners now find themselves in a situation where they are paying more for talent and goods while sales are declining due to a lack of demand from cost-conscious customers, many of whom are tightening belts to focus more on necessities such as food, housing and medications, all of which have increased in price recently.
But there are some bright spots for small business owners, despite many economists predicting a 2023 recession in the U.S.
One bright spot for businesses in Northwest Arkansas is that our region will continue to grow.
At a macro-level, many employers held onto the notion, before the pandemic, that staff had to be in the office or they wouldn’t be productive. Forced to let people work from home, employers found that workers could be just as effective, if not more so, and they found added bottom-line benefits from being able to trim some facilities costs. Today those looking to hire can expand their talent pool by offering a work-from-home or hybrid option.
Another bright spot in the economy is consumers’ increased focus on local quality products. Whether it’s craft beer, local coffee or a chef-inspired restaurant that features locally sourced ingredients, there is demand for more local options, making plenty of room for entrepreneurship.
One seldom mentioned key to small business success is a business owner’s team of trusted advisers, including their local banking relationship. Any bank can provide a deposit account or loan, but having a financial partner invested in the local community improves the likelihood of having a banker who intimately understands the challenges a small business faces in that particular community.
A banker should strive to know their customer’s business almost as well as the owner so they can swiftly identify and respond with the best counsel when issues arise. That can even include connecting with other small business owners or resources such as accountants, lawyers, real estate professionals, or the Arkansas Small Business and Technology Development Center at the University of Arkansas.
Business owners should be looking for financial partners that offer opportunities to learn and grow their business, such as seminars relating to cash flow management, fraud awareness, 401k/employer benefits, business succession and other current topics that may impact their business. That is another area where Northwest Arkansas has an advantage over other markets, as nine of the top 10 banks in NWA by deposit market share have roots in the region.
Kelly Carlson is a vice president and commercial banker with Arvest Bank in Bentonville. The opinions expressed are those of the author.