Despite macro headwinds, a small percentage of SMBs don’t plan to use tech to improve margins.
As detailed in the report “Main Street Health, Q4 2022: SMBs Brace for a Recession,” we found that inflation and the threat of recession are real headwinds to growth and give rise to uncertainty about what comes next.
A full two-thirds of Main Street SMB owners — whose operations have less than $10 million in annual sales — anticipate a recession. At the same time, approximately 40% of firms highlight inflation as their most relevant challenge. With inflation in the mix, keeping the doors open and the lights on puts a crimp in the margins.
Boosting Prices
Raising prices goes only so far, though most of the more than 500 firms surveyed have done just that: 60% of companies have boosted the prices they charge end customers.
Only 11% of companies have been able to lower costs to combat the ravages of inflation. As a result, 58% of all main street small businesses said their profit margins decreased in the last year, and 2023 seems to herald more of the same.
Some recognition that investing time and money in technological innovations can help make companies more efficient — and by extension, might help alleviate some of the pressures that have been felt among these firms, which are responsible for the great bulk of employment that powers the U.S. economy.
The data shows that most firms plan to embrace at least some technological initiatives soon. However, 13% of Main Street small businesses do not plan to do so. That’s not an insignificant number. We can see from the chart below that the key reasons are that some owners feel that they are doing “just fine” without the innovations, and a full 25% say they lack the budget too. By extension, this means that the majority of Main Street SMBS do plan on putting in the effort to upgrade operations.
As for the areas in which they see an opportunity to innovate and where they’re already using technology: Many of the smaller firms PYMNTS spoke to said that they already use digital tools for immediate payment confirmation, payroll software, cash flow management and customer relationship management (CRM).
Looking ahead, the top areas where firms plan to innovate in the next 12 months are AP/AR integration and enterprise resource planning, at 25% each. With a bit more granular insight, we see that in the “number” of new digital capabilities that are on the roadmap and in the planning stages over the next year, construction and utility firms lead the pack, with about five innovations planned, followed by companies in food and hospitality, at a bit more than four innovations planned.
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