This year's Small Business Saturday is on Nov. 26 and it's more important than ever to support your community's local businesses.
As independent agents know firsthand, small businesses enrich their communities. However, as the U.S. economy stutters and takes unpredictable turns through market cycles, many are left exposed. As a result, many businesses are making changes to their operations.
This year's Small Business Saturday is on Nov. 26. It's more important than ever to support your community's local businesses. While the more optimistic business owners are investing in new equipment, hiring new staff and even expect revenue to increase, the more cautious and pessimistic business owners are scaling back, cutting overheads and reducing insurance coverage.
As many as 83% of small business owners and leaders believe revenue will improve or stay the same within the next 12 months, according to a recent WSFS Bank Small Business Trends study, which surveyed 500 Mid-Atlantic small businesses to assess their outlook on the economy, the impact of inflation and other stressors, and their banking relationships and lending needs.
However, the same cannot be said for their confidence in the economy over the next six months, as 43% feel the Mid-Atlantic economy will improve and only 34% feel the same about the national economy. Despite this lack of confidence in the economy, 76% are positive that their business will still be operating in 12 months, with 69% feeling prepared to “weather another storm."
While more than half say they are feeling a negative impact from inflation, 45% are considering a new loan to reinvest in their business by purchasing equipment and another 26% would use the loan to buy property. However, more than half indicated they would use the funds to stay afloat, with 28% using the money to pay workers and 24% to cover losses.
“While it is encouraging to see overall optimism among small businesses, the impacts of rising business costs, coupled with health issues in an environment where it is difficult to find and retain workers, is concerning," said Candice Caruso, senior vice president, chief retail lending officer, WSFS Bank.
“Small businesses are the lifeblood of the U.S. economy and support our communities through job creation, innovation, essential services and more," Caruso said. “When you support a local small business more of those dollars are reinvested into our local communities so that we can all thrive."
In two years, small businesses have weathered a global pandemic, a supply chain crisis, labor shortages and increasing costs. As businesses anticipate more pain due to a recession, few see relief in the near term and are taking alarming measures to protect their business as they anticipate a recession, according to a Nationwide Agency Forward survey.
Shedding light on how business owners have been affected by economic instability, the survey found that 6 in 10 small business owners say inflation and rising costs have negatively impacted them, while 35% say they have been negatively impacted by interest rate hikes. Further, almost 4 in 10 (39%) say their business revenue has decreased over the past six months, with most declines being as high as 30%.
Small business owners are also looking for creative ways to protect themselves from economic instability. Nearly 6 in 10 (58%) business owners have explored areas to cut expenses within the last six months, according to Nationwide. Some of the more drastic measures include 38% of business owners using personal savings to support their business, while 22% have canceled or postponed a major business investment.
Other cuts relate to the jobs market—some owners either have already or plan to pause hiring (38%), or furlough workers and reduce hours (23%) as they prepare for tougher times ahead. Only 14% plan to hire new employees. Additionally, about 4 in 10 say they are not planning to offer raises (42%) or bonuses (41%) to their employees this year.
“Small businesses are struggling to maintain operations under current inflation and labor market trends," said Eric Coleman, senior vice president of small business insurance at Nationwide. “Getting back on track isn't going to be easy if their predictions of a recession play out. What would be worse though is if, in an effort to cut costs, owners ended up putting their business at risk in the long term."
Small business owners are also reconsidering their insurance policies as a way to manage expenses ahead of anticipated economic gloom, with 84% saying they have reviewed or plan to review their insurance policies soon, according to Nationwide. As they look to reduce operational costs, 51% of business owners say they would be likely to decrease their business's current insurance coverage or limits to cut back on spending if a recession occurs. This may be because 52% expect their premiums to increase over the next six months.
“With so many small business owners considering changes to their insurance, it is startling that only 29% of owners have connected with their agent to discuss their policies, especially as inflation and supply chain issues continue to drive up repair costs and timelines," Coleman said. “In those conversations, business owners should ask about and consider how lack of coverage or appropriate limits could impact their operations in the future. Making decisions and updates without speaking to an agent could counter cost-saving attempts."
Additionally, only 43% of U.S. business owners increased their business insurance policy limits to account for inflation, according to a January 2022 study conducted by The Harris Poll on behalf of Selective. The limit updates that were made were influenced by increases in the costs of goods and services, higher wages, and increased interest rates for loans, the study found, all of which may impact the cost to rebuild or resume operations after a claim.
"With inflation's impact on the economy, it's imperative that business owners work with their agents to evaluate the adequacy of their insurance coverage and limits," said Brenda Hall, executive vice president, commercial lines chief operating officer, Selective.
Also, the Selective study found that nearly 2 in 5 U.S. business owners (38%) do not fully understand the scope of their insurance coverage. As a result, they likely do not know how to assess on their own if they are appropriately protected. Additionally, nearly 1 in 4 business owners (22%) have not purchased insurance for their business.
Despite some insurance knowledge gaps at small businesses, independent agents are viewed as a key resource to small business owners for insurance buying, according to “The 2022 Small Business Risk Report" by The Hanover, which found that more than half (57%) of respondents say that advice or recommendations from an agent are critical to their decisions.
However, small businesses typically do not review insurance policies regularly. Forty-two percent of respondents indicated they have not reviewed their policies within the past 12 months. Meanwhile, small businesses may be unaware they need more specialized insurance protection—which is concerning given that the study found that 78% of small businesses engage in one or more activities that present a professional liability risk exposure and 69% engage in activities that present a marine risk exposure.
"After a challenging couple of years, small business owners are looking to protect their companies, employees, and customers, and to be sure they can overcome the uncertainties that may arise," said Michael R. Keane, president of core commercial at The Hanover. "Our 2022 Small Business Risk Report highlights that business owners value risk mitigation guidance and the advice and expertise of their independent insurance agent."
Will Jones is IA editor-in-chief.