As 2023 progresses, U.S. small businesses find themselves caught in a maelstrom of challenges both continuing and emerging. From the ominous threat of a possible recession to stubborn inflation rates and labor issues, these entities face a plethora of issues left unresolved from the previous year. Further complicating the situation are new regulatory challenges, such as the proposed redefinition of gig workers, along with an increasing number of states advocating for wage transparency. These elements indicate a year filled with numerous stumbling blocks. Skyrocketing rental prices add to the burdens of small businesses, particularly those situated in urban areas, forcing owners to rethink their strategies in the face of financial constraints.
Recession Concerns
While the prospect of an economic downturn is present, small businesses are putting more emphasis on their daily operations over broader economic patterns. ADP’s chief economist, Nela Richardson, suggests focusing on immediate issues like labor and wages, instead of conjecturing about a potential recession. She stresses that the topic of recession is, for the most part, a theoretical question, usually far from the practical realities of running a small business.
Amidst the current economic uncertainty, Ray Keating, chief economist for the Small Business & Entrepreneurship Council, advises tight cost control and improved operational efficiency as key survival tactics. Keating further emphasizes the role of technology in achieving marketing campaign efficiency and urges businesses to expand their supplier base to keep costs at bay.
Persistent Inflation
The unrelenting high rates of inflation, though slowly decreasing, continue to be a significant obstacle for small businesses. Given the prevailing high wages and low unemployment, it is expected that the current inflation rate will remain high for an extended period.
In response to these growing costs, small businesses are reassessing their marketing approaches as advertising budgets are cut to compensate for rising overheads. Many are seeking the assistance of boutique marketing firms to help them grow and adjust in an uncertain market. From neighborhood restaurants to shoe repair businesses, traditional advertising techniques are being supplanted by more cost-effective digital strategies and community outreach programs.
These new strategies have proven beneficial for some businesses, but increasing costs suggest that these survival maneuvers may not be sufficient for businesses to stay afloat.
Proposed Gig Worker Regulation
The Labor Department has put forward a proposal that could simplify the process of categorizing independent workers as employees, a change that could have substantial implications for gig workers. While the Department argues that this will provide better protection for workers and create a “level playing field” for businesses, critics maintain that not all gig workers desire employee status, and this new rule could add an extra burden on small businesses.
State Regulations and Wage Changes
In tandem with these issues, small businesses must also navigate through various regulatory changes set to come into effect in 2023. A total of 27 states are planning to increase their minimum wages this year. In California, for example, the minimum wage will be set at $15.50 per hour for all employees, irrespective of the size of the employer.
What Lies Ahead?
The situation starkly reveals a harsh reality: without adequate protection or financial support, many of these small businesses, the lifeblood of the city, could be at risk of closing down. As the cost of rent and goods continue to escalate, their struggle serves as an urgent call to action, highlighting their essential role in a city’s cultural and economic landscape.