How 2024 changed the game

Inflation and small businesses — Credit: Unsplash+

In 2024, inflation continued to be a pressing issue for small businesses around the world. Rising costs of goods, services, and labor made it harder for many small businesses to survive, let alone thrive.

Inflation refers to the increase in prices over time, and while a little inflation can signal a healthy economy, too much of it can create serious challenges. For small businesses, which often operate on tight budgets and thin profit margins, inflation can feel like an uphill battle.

One of the biggest ways inflation affects small businesses is through higher costs for raw materials and supplies. For example, a bakery might see the price of flour and sugar increase significantly, forcing the owner to decide whether to raise prices, cut costs elsewhere, or absorb the higher expenses and reduce profits.

In 2024, research showed that small businesses in the United States faced an average increase of 7% in the cost of goods they relied on daily. Similar trends were reported in other parts of the world, where global supply chain issues added to the strain.

Higher wages also played a role. To keep up with inflation, workers demanded better pay, and rightfully so. However, this put small businesses in a tough spot.

While larger companies often have the resources to adjust salaries more easily, small businesses with fewer financial reserves struggled to match wage expectations.

A study by the National Federation of Independent Business (NFIB) in 2024 found that nearly 60% of small business owners listed labor costs as one of their top concerns. Many business owners reported having to reduce their workforce or cut hours to manage payroll expenses.

Rising rents and utility bills also became a major challenge. For small retail shops, restaurants, and service providers, monthly rent is often one of the biggest fixed costs. Inflation pushed landlords to increase rents in many areas, leaving business owners with fewer options.

In urban centers, some small businesses chose to relocate to less expensive neighborhoods, while others had no choice but to shut down. For example, data from the UK in 2024 showed that one in five small businesses in London faced potential closure due to unsustainable rent hikes.

Interestingly, not all the news was bad. Inflation also prompted innovation and adaptability among small business owners. To cope with rising costs, some turned to technology, such as online tools and automation, to streamline operations.

Others focused on building strong relationships with local suppliers to secure better deals or renegotiated terms with existing partners. Creative pricing strategies, like offering bundled deals or introducing loyalty programs, helped many retain their customers despite price increases.

Consumers, too, played a role in shaping the impact of inflation. In 2024, customers became more cautious with their spending, prioritizing necessities over luxuries.

This shift hurt businesses offering non-essential goods or services but benefited those selling practical, everyday items. Restaurants, for instance, noticed that customers opted for simpler, more affordable meals, while high-end dining saw a decline in patronage.

The government response also made a difference. Some countries provided financial support to small businesses through grants, loans, or tax relief programs to help offset inflationary pressures.

In the U.S., the Inflation Relief Act of 2024 aimed to assist small businesses by lowering some of their tax burdens, but critics argued that the measures fell short of addressing the root causes of inflation.

Meanwhile, other nations focused on monetary policies like adjusting interest rates to curb inflation, which indirectly affected small business borrowing costs.

In summary, inflation in 2024 presented a mixed bag of challenges and opportunities for small businesses. While higher costs and tighter margins forced many to make tough decisions, others found ways to adapt and even grow.

The resilience and creativity of small business owners stood out during this difficult period, showing that even in challenging times, determination and innovation can lead the way forward.