Small Businesses Can Drive Success in 2023 with These Solutions

Laura Ross July 7, 2023

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Image Credit: Jacob Lund / Shutterstock.com

Image Credit: Jacob Lund / Shutterstock.com

There's no question that American small businesses have endured a range of challenges in the past couple of years, from the outbreak of COVID-19 and seemingly endless supply chain disruptions to the rapidly evolving demands of customers, a growing skills gap, and market dominance by large corporations.

There are 33.2 million small businesses across the United States, according to the U.S. Chamber of Commerce. How are small businesses faring in 2023, and what steps can be taken to drive the best business outcomes?

The Challenge: A Decline in Small-Business Funding

Research from the Federal Reserve Bank indicates that less than one-third of small-business owners who pursued traditional financing received the funding they desired in 2021. This represents a steep decline from pre-pandemic levels.

In 2019, before the outbreak of COVID-19, as many as 51% of small businesses in the U.S. received the full financing they sought from their bank.

The Solution: Seek Alternative Financing

For small businesses, securing capital is a critical part of driving growth. Today, there are several options available.

SBA Loans

The U.S. Small Business Administration’s (SBA) small business loans assist entrepreneurs and owners of small businesses in planning, starting, and expanding their businesses. This could include covering startup costs, funding an expansion, or investing in new real estate. It’s easy to qualify, repayment terms are generous and lengthy, and there are multiple options available to suit the varied needs of small business owners.

Read "The Pros and Cons of SBA Small Business Loans" here.

Investors

Some businesses receive funding from angel investors and venture capitalists. They provide startups financing in exchange for either an active role in the company or an ownership share. The hit TV show Shark Tank offers a fun peek into how a rotating group of investors helps further the dreams of inventors and small business owners.

Read "5 Lessons from the Most Successful 'Shark Tank' Businesses" here.

Grants

A grant is funds that are given to an individual or company that do not need to be repaid. There are various types of grants, including small business grants (SBIR/STRR), conference grants, research grants (R series), research training and career development grants (K series, NRSA), and more.

Read "How to Raise Money for Your Startup Business."

The Challenge: Skyrocketing Inflation Rates

Lots of small businesses are booming in the post-pandemic world. But inflation, which reached a 40-year high of 8.5% in 2022, is eating into the takings. Between July 2021 and July 2022, small business revenues grew by 87%, and yet their profits dropped by 4%.

Kabbage surveyed 550 small businesses and found that 75% had been adversely affected by rising inflation rates. Meanwhile, the U.S. Chamber of Commerce reported that inflation is the number one challenge for 50% of small business owners.

However, by late April 2023, Guidant Financial's 2023 Small Business Trends study found that 66% of small business owners that were surveyed reported profitability.

The Solution: Be Transparent and Know Your Limits

Small business owners are rightly concerned about maintaining reasonable profit margins while retaining critical business. Can the costs associated with rising inflation rates be passed directly to the customer?

If the future health of the business depends on it, the answer is a resounding yes. It’s no use striving to keep customers happy with competitive prices if it ultimately catapults the business toward bankruptcy.

To preserve the respect, loyalty, and business of existing customer bases, open and honest communication is key.

When a price hike is necessary, follow this five-step process:

Step 1: Contact customers directly to inform them of the change in price
Step 2: Explain “the why” behind the price increase
Step 3: Focus on the positives, e.g. the quality of service provided
Step 4: Keep the workforce in the loop to prevent miscommunication
Step 5: Prepare for negative reactions.

Other methods for managing rising inflation rates include negotiating better deals with suppliers and cutting out lower-margin products and services.

The Challenge: The Growing Skills Gap

In 2021, the Great Resignation saw 47.8 million Americans quit their jobs. While the rate of resignations has certainly slowed in the past year, the industrial sector remains concerned about a growing skills gap.

It’s projected that there will be more than two million manufacturing roles left vacant by 2030, and these empty positions could result in the loss of around $1 trillion in GDP.

The Solution: Nurture the Workforce

In 2023 and beyond, small business owners must work hard to attract and retain top talent.

Employees want flexible working options, a good work-life balance, and career progression. While small businesses may not be able to offer compensation packages that compete with large corporations, they can invest their efforts in building their brands, fostering a positive and inclusive workplace culture, and facilitating exciting job opportunities.

Small businesses are often a hotbed for innovation and can pioneer ethical and sustainable business practices. These attributes will help to attract the next generation of industrial workers who are in search of meaningful and fulfilling careers.

The Challenge: Materials and Components Shortages

Stories of supply chain shortages have dominated news headlines.

The semiconductor shortage halted the production of smartphones, computers, and gaming hardware in 2022. However, supply is better able to meet demand in 2023.

Meanwhile, the aluminum supply chain is increasingly volatile. Amid the ongoing war in Ukraine, the United States imposed a 200% tariff on aluminum in 2023.

As well, it’s projected that by 2030, the supply from existing and projected copper mining will meet only 80% of our needs.

The Solution: Rethink Supply Chain Strategy

These tumultuous times certainly call for more cautious supply chain management strategies.

For example, many small businesses are pivoting from a just-in-time (JIT) to a just-in-case (JIC) supply chain model. With a JIC model, larger inventories are held, usually on home soil, to minimize the likelihood of stockouts that often occur following severe supply chain disruption or a spike in customer demand.

Ordering early, reshoring or nearshoring production, fostering meaningful and trusting relationships with suppliers, or establishing a preferred supplier program can also mitigate the impacts of supply chain disruption.