TRANSCRIPT
Greg Corombos: Hi, I'm Greg Corombos. Our guest in this edition of Expert Insights is Tom Sullivan, Vice President of Small Business Policy at the U.S. Chamber of Commerce. In conjunction with MetLife, the Chamber recently surveyed small business owners on a variety of subjects for its Small Business Index. For the next several minutes, we'll be looking at some of the biggest challenges facing small business owners and discussing how they are addressing those challenges most successfully. And, Tom, thanks very much for being with us,
Tom Sullivan: Greg, thank you for having me.
Greg Corombos: Well, it's great to have you with us and to understand exactly the challenges that small business owners face, and also, perhaps even more importantly, the ways to meet those challenges. But before we get into the issues that concern business owners most, briefly give us some background on the Small Business Index and how you use it to gauge what's happening with small businesses.
Tom Sullivan: Greg, I appreciate you giving me this opportunity. The U.S. Chamber of Commerce represents over three million businesses in the United States of every size sector and in every place throughout the country. That includes members of over 1600 state and local Chambers of Commerce. And it's sometimes a little difficult to take the pulse of three million businesses, knowing that the vast majority of our business members are small businesses. That's why we partnered with MetLife to survey small businesses every quarter. We've been doing this for about five years. We find out an amazing amount of information about our small business members. And it really helps us stay on track for advocating policies that are helpful for businesses when we see what's going on on Main Street, thanks to our partnership with MetLife.
Greg Corombos: And as we get into these four challenges, do you find that they're consistent for all small businesses, regardless of size? I mean, small business can have a different definition. I think officially, it's up to 500 employees. But most people think of them, as you know, a handful or so. So are these challenges pretty consistent, regardless of the size?
Tom Sullivan: Thank you for pointing out the obvious fact that every small business is a little bit different. Very few people realize that over 80% of what makes up America’s free enterprise are non-employers. They’re sole proprietors, self- employed business men and women. And so yes, there are differences amongst the smallest and some of the larger small businesses. Happy to kind of dig into that a little bit, and giving you a snapshot of what's going on on Main Street right now,
Greg Corombos: Let's dig into these challenges and the solutions here. But let's start with the biggest challenge by far. And that's inflation. This is now true for the fifth consecutive quarter. What are the biggest specific ways that inflation is causing worries for small business owners right now?
Tom Sullivan: Inflation, as we see national numbers, is going down, which is great news. It's an eye opener to see the survey data that shows, unfortunately, the decrease in high prices hasn't rally trickled down to Main Street yet. As you said, we've got five consecutive quarters where inflation is top of concern for small business owners. And you know, sure, there's a real technical definition of inflation. But when it comes to small business, it's much more broad than that. It's simply higher prices for everything, whether it's gas at the pump as an individual consumer, the cost of groceries at the supermarket. And when you get into the business world, it is the cost of supplies, the input material, and time for a business is just more expensive. Hiring employees, which is also top of mind for small businesses, is also more expensive, because there are fewer workers in the United States to fill the jobs. That means that they're paying higher wages, higher benefits to keep and to attract new employees. So, the long answer to your question about what is inflation and what is the highest concern for small business, the simple response is higher costs across the board.
Greg Corombos: And I don't know how closely you survey this particular follow up, but when you're paying more for your raw materials, or you're paying more for services, you’ve got to defray those costs somehow. And often that leads to raising prices on your own customers who are also paying more for everything. So how delicate of a balance is that?
Tom Sullivan: It's extremely delicate, especially when it comes to small business. They do not like to raise prices. We're always fearful of losing customers, losing our reputation. And so sometimes when policymakers talk about raising prices, they think it's as easy as just kind of flipping a switch. It's not, it's actually very painful and sometimes even emotional for small business owners, who pride themselves in providing the best product or service at the lowest cost or most reasonable cost. So small businesses are struggling to try to figure out how to pass on those costs. But they're doing that in a way that forces them to look at the numbers. We're seeing small businesses not look at quarterly numbers, they're looking at daily numbers. And they're trying to figure out input output costs, labor costs. All trying to figure out, alright, what is the least amount we can raise prices in order to maintain our margins. And so, even when they're raising costs, many small businesses are shrinking their margins. So revenues might be up, but you really got to look at margins, because those seem to be shrinking. And that's certainly a long term concern for small business.
Greg Corombos: You mentioned raising prices is one way to deal with inflation. What other strategies are you hearing about that seem to be working for small businesses to combat this frustration?
Tom Sullivan: I'm lucky to work with 100 of — well, I'm biased — 100 of the best small businesses in the United States. They serve on our Small Business Council. One of those council members, Stephanie Sims, who operates out of the Phoenix area, provides financial advice for startups and other small businesses. And she said, one way to really narrow in on the survivability and potentially the thriving as a business is to really focus in on those things that are profitable, and ditch the rest. And those choices can be very difficult. But when you have to be shouldering increased costs, you really don't have a choice. So before you decide to make drastic cuts, Stephanie Sims, who runs a company called finance ability, her advice is [to] look at the numbers, look at those products or services that are actually driving profit, focus, double, triple down on those, and actually ditch different products or services that are not actually profitable.
Greg Corombos: We're talking with Tom Sullivan. He's the Vice President of Small Business Policy at the U.S. Chamber of Commerce. And we're going over some of the biggest concerns of small business owners in the recent Small Business Index from the Chamber and MetLife. And the next biggest worry, Tom, although considerably less so than inflation, is revenue. What's the biggest reason for concern over revenue?
Tom Sullivan: Our biggest concern for revenue is what happens when interest rates go up so much that people stop spending. So we're caught in, really, a tough situation, where the more robust the economy is, the more the Federal Reserve wants to raise rates. And when you raise rates to cool down the economy, that means people are going to spend less. So we're really caught between a rock and a hard place. Because if people spend less, then revenues will go down. And again, that's where that advice of focusing in on the most profitable part of your product or service is really the way to go. Also, when these interest rates are rising, there is really a need to look at your finances. Try to steer away from any variable interest rates. Really struggle to get into fixed rate credit in order to better manage your finances. Those are all things that small business owners have told me. This isn't new information. But as inflation stays high and interest rates go up, that means that there is a credit squeeze on small businesses. And Greg, what we're seeing is during COVID, when small businesses realized they needed relationships with a banker, we've seen that actually increase the reliance on having multiple relationships with multiple lenders and finance experts in order to navigate a high inflation, high interest rate environment. Because small business owners can make the numbers work, but they need help and trusted advisors and lenders to make the numbers work. And so we're seeing that one way to deal with high inflation and higher interest rates that result in a credit crunch, one way to deal with that is to be able to trust and create more relationships with bankers and lenders than perhaps small businesses had prior to COVID.
Greg Corombos: Well, as you explained, Tom, number two and number four here on this list are kind of intertwined; that's revenue and interest rates. And we'll talk a little bit more about interest rates in just a moment. But one of the interesting things here, in addition to the fact that over a fifth of small business owners are quite concerned about revenue, roughly two-thirds of business owners are also confident that revenues will improve in the coming year. What are they basing that confidence on?
Tom Sullivan: You know, Greg, this is really the fascinating part of the MetLife Small Business Index is that despite five consecutive quarters of high inflation, despite knowing that interest rates are going to go up, small business owners are real bullish on future revenues. And they're real bullish on hiring. And here's why. For small businesses to survive through COVID, or perhaps pivot into new lines of business during COVID, they’ve developed this suit of armor. And the resilience that we see in small business right now allows for them to have that suit of armor in the face of high inflation and rising interest rates. And that is, the increased consumer demand is actually making them very optimistic about the year ahead. And you know, quite frankly, Greg, it's my job at the U.S. Chamber of Commerce, to lobby Congress in the White House to make sure the environment is at a place where businesses can actually capitalize on a good economy, because there are some storm clouds ahead. You know, if those high interest rates are accompanied by an even more aggressive federal regulatory agenda, then unfortunately, some of that optimism is going to hit a brick wall. And so at the U.S. Chamber of Commerce, we are lobbying aggressively for federal agencies to seriously consider the impact on small business before they issue new mandates that result in red tape and take the focus away from growth and put it towards administrative red tape, paperwork, compliance.
Greg Corombos: Tom, let's talk briefly about interest rates. You talked a lot about it and how having relationships with multiple lenders is critical in an environment where interest rates are on the rise. What other alternative ways of getting capital are out there that people are exploring as a result of interest rates being raised quite a bit here in the last year?
Tom Sullivan: Well, thank you for asking that. I mean, access to capital has always been and will always be an important part of small business issues and priorities. And you see in our MetLife Small Business Index, how small businesses are accessing capital. Now, one part of that is personal savings, friends, and family. Now, that has always been the case for entrepreneurs and small business owners. They always look to their personal savings, friends, and family first. Traditionally, small businesses are pretty conservative. When it comes to financing, they like to balance the checkbook every month. And quite frankly, they would like the United States to balance its checkbook at the end of every month, too. But that's probably a topic for another day. Small business owners look to their own savings first, friends and family, credit cards, and then lenders. And the majority of loans that go to small businesses come from community banks, and that is primarily because of the relationship lending that community banks specialize in. We are finding that small business owners are taking that importance of relationship and trust and going well beyond community banks to regional banks and even national banks. And we're hoping that more of that “relationship lending” be part of the offerings of even our nation's biggest banks, because that's where small businesses are.
Greg Corombos: Tom, last question on this front. Is the expectation in your mind that interest rates will largely level off? Or are they going to get higher? We seem to be getting mixed signals from the Fed. At the last meeting, they said no change, but the forecast is that they'll probably go higher.
Tom Sullivan: I'm not someone that's going to second guess Jay Powell, the head of the Federal Reserve, they're going to get hiked again. And that puts additional pressure on small businesses that really want to get into growth mode. And it's obvious from our MetLife Small Business Index, the small businesses are poised to be in the growth mode. They are looking for higher revenues and they're looking to add staff. And so, I think that it's going to be tough sledding ahead to make sure that those small businesses are actually to go into the growth mode they are so anxious to dive into.
Greg Corombos: Alright, last topic, Tom. Let's move to the number three issue on the list, and that is lingering supply It chain challenges. And while there's been improvements, certainly, in this area, it's still a serious issue for 21% of all small business owners and as many as 28% in certain small business sectors. This is one of those areas where the individual small business owner can't do much about it if the stuff’s not getting to them. So, how is this presenting specific headaches? And how are they working around these problems?
Tom Sullivan: This is one of those cases where we've got to start looking past a broken-down truck fleet or a closed port and look at the global free trade agenda that the United States is completely absent from. Until we actually get into the negotiations with other nations on free trade agreements, we're going to continue to have these supply chain problems. Because domestically, we are not there yet when it comes to being able to source and feed the needs of the domestic manufacturing base. Until we get there, we've got to rely on our partners around the world for supply chains. And right now, we are not engaged in enough free trade agreements to make that happen. So costs will continue to go up. We're going to continue to, unfortunately, be focused on roads and bridges and ports, when we really should be pushing the Biden administration to enter into and ink these free trade agreements so that we're able to free up global supply chains.
Greg Corombos: That is a long term goal. What can the small business owner do right now, though?
Tom Sullivan: Well, right now, really focus on those things they can control the most. And that's where we see the most optimism. The things that they can't control, unfortunately, are things that they've got to try to figure out ways to distance themselves from. But the more control that a small business owner has on their suppliers, the better off they are. Now, that's not going to be a great answer for those businesses that are fully reliant on things out of their control. But what I hear from folks who source from overseas, they really double down on the relationships that they can control, and then say an extra prayer every night for those that they can't control.
Greg Corombos: Tom, unfortunately, we're out of time. It's been a fascinating conversation. Where can people find your report?
Tom Sullivan: So the main U.S. Chamber website is www.uschamber.com. And we're gonna put that MetLife report up front and center so that more folks and your listeners can take advantage of it.
Greg Corombos: Wonderful. Tom, it's been, again, a fascinating conversation. And it's great to know what issues are most important in the minds of small business owners. Because knowing that makes it easier to find solutions for those things. So thank you very much for your time today. We appreciate it.
Tom Sullivan: Thank you, Greg, and thank you for your interest.
Greg Corombos: Absolutely. Tom Sullivan is Vice President of Small Business Policy at the U.S. Chamber of Commerce. I'm Greg Columbus reporting for Expert Insights. For more information on these and other small business issues, please visit bizfilings.com.
