Mom-and-Pop Stopped: How Ominous Economic Factors Have Ended the Covid Recovery for U.S. Small Businesses

August 24, 2022

By Samuel M. Andre and Deqa Mohamed, Summer Associate

Ever since the United States unofficially pegged the end of the COVID-19 era it toiled in for over two years, the nation’s small businesses have faced ever-increasing financial distress from factors beyond the pandemic. According to recent survey data of small business owners, 91 percent of mom-and-pop shop owners are encountering significant and negative impacts from price inflation, supply chain issues and workforce challenges. Even large corporations facing these obstacles, including Target and Walmart, have missed re

cent quarterly earnings estimates and witnessed epic stock slides unseen for decades. In a look at the most imminent of these threats, it is understandable how small businesses are now teetering on the brink of financial distress.

Energy Costs

As every American has witnessed, energy costs have been rapidly increasing over the last few years. On July 21, 2022, the average gallon of gas in the United States was $4.40, nearly $1.50 more than a year ago. On average, energy costs are now one of the top three business expenses for many small businesses — adding up from heating and cooling of office and warehouse spaces necessary to house employees and goods, the operating of equipment by those employees to make those goods, and the running of company vehicles to sell and deliver those goods.

Without access to affordable and reliable energy supplies, many small businesses face an increasingly difficult time to remain competitive with other small businesses and larger competitors while also meeting their business needs.

Supply Chain Issues

Supply chain issues have also remained a significant concern for small businesses. While the nation may have collectively moved on from pandemic life, the global shipping industry —including foreign countries housing the primary manufacturers of goods, has continued to stutter despite the return to pre-pandemic life. Because of this bottleneck, small businesses are struggling to obtain the goods they need to turn a profit. While this challenge has affected large companies, small businesses have found it particularly difficult to adapt and have seen a greater negative impact on their businesses. A recent Goldman Sachs poll found that 69 percent of small business owners said issues with the supply chain have hurt their bottom lines. While there have been governmental efforts to address these economic hardships, these efforts have not done enough to turn the tide.

Labor Shortages

Even internally small businesses are feeling the pressure as they are unable to hire enough employees to service their now re-opened businesses. Nearly 90 percent of small businesses report a difficulty in finding and retaining qualified employees. Having just withstood years of the pandemic, workers are, rightfully or wrongfully, choosing not to rely on minimum wage positions. Instead, they are weighing their options with increased bargaining power.

Consequently, small businesses are forced to decide whether to attempt to weather the storm with lower payrolls or apply further pressure on themselves by paying higher wages to guarantee that workers will return.

Each of these factors have created significant pressure points for small businesses and their owners. Many mom-and-pop shops, however, are limited in their ability to adjust the prices of their goods and services to match their increasing energy costs, supply chain issues and labor shortages. Either they raise prices of their goods and services to pay for these ever-rising costs, risking the loss of their current clientele, or they stand pat and risk further pressure from these continuing factors. Either way, these businesses will continue to face the present risk of a downward spiral into financial distress. Only time will tell if these factors will subside or a new recession will arise to put these mom-and-pop shops out of business. Unfortunately, they appear ready to remain for the time being.

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