- Small businesses are considering where to cut costs as their economic outlook darkens, with owners pausing hiring, canceling or delaying key business investments, or tapping into their personal savings to support the business in the face of economic uncertainty.
- Seventy percent of small businesses expect to see a recession within the next six months, with only 37% stating they feel their companies are prepared for such a downturn, according to a study released Thursday by Nationwide, a Columbus, Ohio-based insurer.
- Business owners are considering freezing hiring or furloughing their workers in a bid to trim expenses, with 38% planning on pausing or having already paused in hiring new workers during the past six months.
Small businesses pointed to inflation, supply chain disruptions and a stubbornly tight labor market as some of the top challenges that have negatively impacted them during the past six months, according to the study. Persistent inflation and rising prices are currently the top challenges for small businesses, according to the study of 401 small business owners — defined as those with 1-50 employees and less than $10 million in annual revenue.
Sixty-one percent said inflation had already impacted their businesses negatively over the past six months, while 58% pointed to inflation as the top challenge they expect to face over the next six months.
Continuing inflation pressures, supply chain challenges and rising consumer prices have all increased the likelihood of a recession occurring in the first or second quarter of 2023, with Fitch Ratings predicting a “relatively mild” downturn will start during the second quarter.
Fannie Mae, meanwhile, predicted GDP will decrease 0.1% this year and that the Fed will “tolerate a modest recession in 2023 to ensure inflation trends have reversed,” CFO Dive has reported.
Small business owners are already contemplating large-scale steps to guard against the coming downturn — mild or otherwise — as the slumping economy cuts into their revenues. While 52% of small businesses rated their own companies’ conditions as either “good” or “excellent,” 39% reported their revenues have dropped during the past six months. Most declines were as high as 30%, according to the survey.
Companies are also still having trouble retaining workers, with the labor market remaining tight despite an expectation that rising interest rates could cool things down and shift the balance back to employers.
Thirty-eight percent of business owners have paused or are considering pausing hiring, according to the study, which also found 30% of small businesses said they had paused hiring in past recessions or downturns. Thirty-eight percent of small business owners also reported using personal finances to help support their companies during that time, according to the study.
Moreover, the majority of businesses have taken a closer look at their insurance coverage in the face of a potential recession, with 84% saying they have reviewed or planned to review their coverage soon. Fifty-one percent of small business owners said they would be “somewhat likely” to reduce their current insurance coverage to cut down on costs in the event of a recession.
Recession fears are also spreading among both financial advisors and investors as well as businesses, according to an Oct. 10 Nationwide study, which found volatility, inflation and recession among the top fears of investors, advisors and financial professionals.
Seventy-four percent of investors reported worries over the coming recession, while 82% of advisors and financial professionals did the same, according to the study.