Inflation Is Creating a ‘Perfect Storm’ of Challenges for Small Business Owners

Although inflation levels are showing signs of leveling-off, small businesses are still facing steep challenges and remain uncertain about the economy.

While the Consumer Price Index saw prices fall slightly in the month of July, inflation remains near a 40-year high. The latest U.S. Chamber and MetLife Small Business Index revealed that inflation is the top concern for business owners right now. Nearly 7 in 10 say they raised prices to cope with rising input costs.

Here’s how four small businesses across different industries and regions of the country are handling the impacts of inflation.

Dulan’s Soul Food

Los Angeles, California

Restaurant owner Greg Dulan has raised prices twice to keep up with the supply costs at his two cafeteria-style restaurant locations — and that’s impacted the number of customers coming through the door.

"Every time you raise prices, folks decide they can eat at home or find food somewhere cheaper," Dulan said.

Dulan's Soul Food Kitchen celebrated its 30th year in business in June, but Dulan says inflation has been “a tremendous challenge.”

"Everything, and I mean everything, has gone up — particularly our proteins," Dulan said.

On top of soaring costs of ingredients, Dulan’s employs a mostly minimum wage workforce, and California’s mandated wage increases have severely impacted the restaurants’ bottom line.

"The recovery and rejuvenation of business is not hitting all areas the same. In South LA, we're still depressed,” Dulan said. "Prices are still up from where they were a year and a half ago. I'm hoping they'll get back down, but I have concerns."

Jam Hops Gymnastics

Ham Lake, Minnesota

Jams Hops has raised its prices to offset higher operating costs — especially higher labor costs. Owner Brenda Nolby says she typically does a 4-5% annual increase on gym class prices, but this year she raised them by 10%.

"It probably should have been more," Nolby said. "I didn't want to shock my clients and customers, but I knew we had to do something just to keep up."

The biggest challenge at Jam Hops right now is hiring enough staff to meet the demand for gym classes that currently have waitlists.

"A lot of my workforce is high school and college-aged kids. They can walk into [big retail/restaurant chains] or anywhere else and get paid at least $15 to $17 an hour."

The Minnesota fitness center is celebrating its 25th anniversary this year and Nolby is hopeful that consumer demand will stay high with plans to expand soon.

"I know gas prices are high. I know there are some material shortages. But I have waitlists for my classes. So, that tells me parents have enough of an income right now that they're able to support extracurriculars."

The Hideaway Café

Winchester, Virginia

The Hideaway Café, a coffee shop and community gathering space in Virginia, is struggling to keep up with increased costs and supply availability.

"Supply costs have increased at a rate beyond anything I could have expected," says owner Victoria Kidd. "We have incrementally raised prices several times to keep up with the rapidly changing cost of goods. Even with the increases, we're barely breaking even."

The effects of inflation are hitting business owners like Kidd in the service industry hard.

"We started the year with an increase in the minimum wage. Then we saw increases of 10-25% in some categories, on top of increased costs for services and a rent increase. It's a perfect storm," Kidd says.

While customer traffic has been high through the summer with lots of out-of-town visitors, Kidd is expecting that with rising costs and summer coming to an end, business will slow.

"This is a strange time to be in business. On the one hand, we're seeing people coming out of their homes and trying to capture the ‘feel’ of pre-pandemic life. On the other hand, the cost of doing business is higher than ever."

VetCor Services

Tampa, Florida

VetCor Services owner Paul Huszar uses standard estimating computer software to calculate prices for his emergency water and mold damage restoration company—but what it doesn't account for, he says, is inflation.

"What we found is that software isn't agile or responsive enough to take into account, for example, the rising costs of fuel," Paul says. "It's cut into our margins.”

Occasionally Huszar can add surcharges to compensate for the high cost of products like fuel, but this only mitigates the effects of inflation slightly. With slimmer margins, the business now faces the added pressure of making every repair as efficient as possible to meet its bottom line.

VetCor also has a franchising business, and inflation concerns are hitting the business after franchising slowed substantially during the pandemic, preventing VetCor from growing at the rate they anticipated.

But Huszar remains “cautiously optimistic,” as an economic downturn could allow VetCor Services to create opportunities for people who want to own a business while minimizing risk, an attractive feature of starting a franchise in an essential industry.

About the authors

Victoria King

Victoria is an Associate Manager of Communications at the U.S. Chamber of Commerce.