- Small businesses are considering where to cut costs when their economic outlook darkens, when owners stop hiring, cancel or postpone key business investments, or draw on their personal savings to support the business in the face of economic uncertainty.
- According to a study released Thursday by Nationwide, a Columbus, Ohio-based insurer, 70 percent of small businesses expect a recession within the next six months, with just 37 percent saying they feel their businesses are headed for a recession are prepared for such a downturn.
- Business owners are considering freezing their employees’ hiring or furloughs to reduce costs, with 38% planning to pause hiring of new employees in the past six months or have already hired.
According to the study, small businesses pointed to inflation, supply chain disruptions and a stubbornly tight labor market as some of the top challenges negatively impacting them over the past six months. Persistent inflation and rising prices are the biggest challenges facing small businesses right now, according to the study of 401 small business owners – defined as businesses with 1-50 employees and less than $10 million in annual revenue.
Sixty-one percent said inflation has already negatively impacted their business in the past six months, while 58 percent named inflation as the biggest challenge they face over the next six months.
Persistent inflationary pressures, supply chain challenges and rising consumer prices have all increased the likelihood of a recession in the first or second quarter of 2023, with Fitch Ratings forecasting a “relatively mild” downturn to begin in the second quarter.
Fannie Mae, meanwhile, forecast a 0.1% contraction in GDP this year and that the Fed will “tolerate a mild recession in 2023 to ensure inflation trends reverse,” CFO Dive reported.
Small business owners are already considering large-scale steps to protect themselves from the coming downturn – mild or not – as the collapsing economy eats away at their revenues. While 52% of small businesses rated their own business’ conditions as either ‘good’ or ‘excellent’, 39% reported that their revenue had fallen over the past six months. Most of the declines were up to 30%, according to the survey.
Businesses are also still struggling to retain workers as the labor market remains tight despite expectations that rising interest rates could calm things down and shift the balance back to employers.
38% of business owners have taken a hiatus or are considering a hiring hiatus, according to the study. 30% of small businesses also said they stopped hiring during past recessions or downturns. According to the study, 38 percent of small business owners said they also used personal finance to support their businesses during this time.
Additionally, the majority of companies have taken a closer look at their insurance coverage in the face of a potential recession, with 84% saying they have reviewed their insurance coverage or are planning to review it soon. Fifty-one percent of small business owners said they were “quite likely” to reduce their current insurance coverage to reduce costs in the event of a recession.
Recession fears are also spreading among financial advisers and investors, as well as companies, according to a nationwide study Oct. 10 that ranked volatility, inflation and recession among the top fears of investors, advisers and finance professionals.
According to the study, 74 percent of investors said they were worried about the upcoming recession, while 82 percent of advisors and financial professionals did the same.