New Survey: Small Business Optimism Falls to a More Than 11-Year Low

Key Podcast Highlights

What Were the Results From the NFIB’s Most Recent Survey?

• The National Federation of Independent Businesses (NFIB) just released their monthly small business optimism index and found that optimism fell to a more than 11-year low.

What’s Causing Lower Optimism?

• Inflation and the labor market only easing slightly.
• Costs of iron and steel, utilities, labor, freight, construction materials and manufacturing materials are all up anywhere from 15 to 30% over the past two to three years.

How Do You Deal With Higher Inflation?

• According to the NFIB, 28% of respondents are saying they’ve raised prices compared to three months ago. However, you shouldn’t do it across the board. Instead, use data and accounting systems like QuickBooks to lean into data. You want to look at your sales by customers and your margin by customers. You also want to look to see which customers are the most profitable and least profitable. Give price increases to customers that you think can absorb the price increase.
• It’s also important to communicate price increases to your customers two or three months in advance.
• You can also maximize your interest earnings, certificates of deposits, multi-year annuities and treasuries that you buy. All of this can offset your rising costs because interest rates are pretty high right now.

Transcript

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Gene (00:02):

Hey everybody, it’s Gene Marks and welcome to this week’s edition of the Hartford Small Biz Ahead podcast. Thank you so much for joining me. Hey, let’s get right to the topic of the day. It has to do with small business optimism and inflation, and I wanna talk to you a little bit about some thoughts on dealing with inflation this year. So for starters, the National Federation of Independent Businesses (NFIB) just released their latest monthly small business optimism index, and it wasn’t great. Optimism, they say fell to a more than 11 year low. I’m not like a super fan of surveys about optimism and confidence and sentiments because it’s tough to really gauge that stuff, but I do have to say the NIB’s survey, their report, it’s been going on for like 50 years.

Gene (00:47):

So there is a methodology to it. I do pay a bit of attention to it. And honestly, it is when I hear optimism is at a 12 month low, sorry, 12 year low. It’s pretty crazy. It was like the seventh decline in the last 18 months is what it was. Bill Dunkelberg, said that owners continue to manage numerous economic headwinds. Inflation has once again been reported as the top business problem on Main Street. And of course, the labor market has only eased slightly. So yeah, the optimism is lower. It’s a problem. We do feel that there are challenges in the headwinds in front of us. And, and a lot of us are saying it’s still inflation and it is still inflation.

Gene (01:32):

I get it. I mean, yes, the consumer price index is down to around 3% or so. But the producer price index remains also in that three to 4% range. It’s still sticky. It’s a lot further above what the Fed is trying to target. And most importantly, and I know you can agree with this, the inflation that you’re experiencing in your business, the cost of your business, iron and steel, utilities, labor, freight, construction materials, manufacturing materials, these are all up anywhere from 15 to 30%, over this past two to three years, right? So you’re dealing with a higher cost structure and we have to deal with it. So the question is, how do you deal with it? How do you deal with higher inflation? Well, there are some options that you have.

Gene (02:18):

The most obvious option, of course, is to raise prices. And I get it. And a lot of companies are saying that they’re gonna raise prices. In fact, according to the NFIB, 28% of the respondents, it’s almost the third said they raised prices compared to three months ago. It was the largest share since October. But lemme give you some thoughts on raising prices. You don’t just do it across the board because we have what’s available to us that our parents and grandparents did not have back in the late seventies and eighties when inflation was last as significant as this. We have data, we have accounting systems, we have QuickBooks and Epicor and Zero and Sage and Dynamics and whatever you’re using. My smartest clients are leaning into their data.

Gene (02:58):

They are looking at their customers, their sales by customers, their margin by customers, and they are looking to see which customers are the most profitable, the least profitable, the ones that are generating the more revenue than others. The ones that are generating more headaches than others, and they’re leading into their data. So they’re not just having this across the board price increase. They’re giving price increases to their customers that, they think can absorb the price increase. Maybe certain industries are doing better or worse, and they’re holding off on raising prices on really good customers or customers where their margins are still strong or where they have really good relationships. So my advice to you when it comes to price increases in this world of inflation is target them better. Don’t just be lazy and do something across the board. Price increases where everybody gets affected.

Gene (03:47):

Nah, don’t do that. Leverage it better and target it better. And only look at your data and only do price increases on those customers that you think deserve it or that you think you can get it from, or that are lagging behind in margins or profits for you where you can, you think the money really could be put to good use. That’s my first thought on price increase. Okay, target it. Second, if you’re gonna do price increases to customers, make sure you communicate. I mean, another thing that we have that our parents and grandparents did not have 30, 40 years ago is we’ve got email systems. We’ve got Outlook and Gmail and Constant Contact and Mailchimp and whatnot. Just like lay on a price increase on a customer, it’s almost like, how do you respond?

Gene (04:30):

You need to communicate to your customers. If you do think that you’re gonna be doing price increases in the future, give ’em warnings. Give ’em a two month or a three month heads up. Let them know that this is coming. Give them time to prepare. Target your communications. Use your emails systems to send out mass emails and only send the emails to the people again, that are affected, but give them enough time to prepare. Okay? People want information and communication. So price increases… Those are my two thoughts on that, to navigate your way around inflation. Now, some other people talk about like other things that they’re doing, to navigate their way around inflation. And one thing I do wanna make sure that you’re not missing is interest. I mean, in the end it’s all about your profits, right?

Gene (05:13):

Well, interest rates right now are as high as they’ve been since the early eighties and that means you can maximize interest from a lot of your cash. So if you have cash that you were not using or that it’s not liquid that you can afford to put away for three months, six months, even a year or two, now’s the time where you could do that and really maximize your interest return. Buy and ladder CDs, certificates of deposits at various banks to spread the risk and do it where they have different maturity dates at different times. So, when they are maturing, it’ll match what your liquidity is. Secondly, consider multi-year annuities. Okay? Talk to a wealth advisor about this. Multi-year annuities are paying fixed rates of four or 5%. You can lock in cash as long as you don’t need it, and really get a good return on your investment.

Gene (06:05):

And finally, a lot of people are putting money away not only into certificate of deposits, multi-year annuities, but treasuries as well. So, treasury funds or just straight out T-Bills, they’re providing a good return on investment. So remember, it’s all about bringing more revenue in as well as reducing your costs, raising prices. Well, you wanna maximize the interest earnings that you’re making that will help you navigate your way through this inflationary period. One final thing that I will also tell you about inflation is navigating your costs. And I’ve talked about this a previous podcast before, but I want to reiterate one point. You need to be getting good numbers outta your business. A good weekly flash report of your key metrics in your business. Just cash and receivables and payables, really keeping your thumb on the numbers.

Gene (06:54):

But most importantly, I strongly recommend every month you should be getting a year to date report of your top sales by customers compared to last year and your top purchases by vendor compared to last year. That will keep you right on top of the places where the money is coming in and the money is going out. And it will also, raise any questions for you or present any potential issues for you that might impact your cash flow because it’s all about good cash flow. So let me recap. And this year of rising inflation, the NFIB reporting again, optimism continues to be down for the lowest in 12 years. Inflation is the biggest issue for us as business owners. Yes, do price increases but target them better. Lean into your data. Don’t just do something across the board.

Gene (07:42):

Number two, communicate well with your customers. Okay? If you’re gonna be giving price increases, you can do it without annoying them or angering them by giving them enough advanced notice. Number three, maximize your interest earnings, certificates of deposits, multi-year annuities, treasuries that you buy. All of this stuff can offset your rising costs because interest rates are pretty high right now. Interest income that you can be getting and that would really be a big help. So all of that is very, very important. And finally, have good weekly reports coming out of your business. Don’t just wait till the end of the month. That’s no way to manage your costs. Not only look at flash numbers, like some key metrics a couple times a week, like just cash and receivables and payables, but look at every month, a year to date report of your top selling customers and suppliers that you’re paying compared to last year. It will open up a lot of questions for you and make sure you’re really on top of who’s really bringing in the business for you and where your cash is going. I have more tips on navigating your way through this inflationary environment and I will, certainly share them in future episodes of this podcast. But those are my thoughts right now in the wake…

Gene (08:54):

Of the NFIB’s report. I hope that they help you. My name is Gene Marks and you have been listening to the Hartford’s Small Biz Ahead podcast. Look, if you need any more tips or advice or help in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. I’ll be back next week with some more tips to help you run your business. Looking forward to it, and we’ll see you then. Take care.

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