Examining Challenges Faced by Ohio Businesses in 2023
As Ohio businesses entered 2023, a sense of caution and diminished optimism weighed heavily. With the weakening economy, persistent inflation, and a challenging labor market, companies are grappling with familiar concerns that have carried over from the previous year. However, what sets this year apart are two distinct factors: first, businesses believe they have exhausted significant cost-cutting measures, leaving them with limited options; second, owners and executives are experiencing the cumulative strain of unprecedented business challenges for the third consecutive year. In this article, we explore the survey conducted by First Citizens National Bank, shedding light on the specific challenges faced by business owners and executive managers in Northern Central Ohio markets, with inflation emerging as the most significant obstacle on their path to success.
Inflation 101
Inflation is typically measured as an annual percentage increase. A modest level of inflation is not only normal but also an indicator of a healthy economy. Central banks, such as the Federal Reserve in the U.S., aim to maintain inflation around 2%. It stimulates spending and investment, thereby fostering economic growth.
However, high inflation rates can pose problems. A rapid increase in prices can erode customers’ purchasing power, while also increasing production costs. The combination of these factors can have a damaging impact on a company’s ability to sell its products and services and maintain margins.
Inflation Impacts State’s Economy, Business Success
Nearly 31% of our survey’s respondents identified inflation as the biggest issue facing the State’s economy, followed by the Job Market (18.6%). This sentiment was felt by businesses of all sizes.
And when we asked businesses about the greatest threat to their economic growth, 34.1% identified inflation as the primary concern. This was followed by labor shortages at 14.4%, rising production costs at 9.6%, and sales at 5.4%. A significant percentage of small businesses are worried about the impact of inflation on their operations and profitability, highlighting its potential detrimental effects on their growth prospects. All business segments and titles identified inflation as their greatest threat.
The two biggest threats or challenges facing companies in 2023 are staffing, with 18.8% of respondents highlighting it as a concern, followed closely by inflation at 17.9%, These results emphasize the struggles businesses face in managing inflationary costs in a tight labor market.
How Inflation Affects Businesses
Inflation is a multi-headed threat to businesses: higher prices for raw materials, salaries, rent, utilities, and more means production costs are rising. And with the rising rate environment, borrowing becomes less affordable, a challenge for businesses that require additional financing to manage their cashflows.
For most businesses, who have already exhausted cost-cutting and efficiency options during the pandemic, the only tool at their disposal is to adjust their prices. Of course, this isn’t without consequences. Raising prices could potentially discourage customers and decrease demand, while not adjusting could squeeze profit margins.
In an inflationary environment, it’s crucial for businesses to plan and build these rising costs into their pricing structures and financial forecasts. They can also consider improving operational efficiencies to offset the increased costs.
Trusted for Business Success
At First Citizens National Bank, we’re committed to helping both our individual customers and businesses understand and navigate the complexities of inflation. We offer a range of financial products and services designed to help you stay ahead.
For businesses, our dedicated team can provide guidance on effective financial planning, reducing the cost of borrowings, and help identify operational efficiencies. Moreover, we can assist businesses in exploring opportunities to invest in growth areas that could yield higher returns despite the inflationary environment.
Understanding inflation and its impacts is key to maintaining financial health. Remember, while inflation poses challenges, it also presents opportunities for those well-prepared to adapt and innovate.
We’re not just here to weather the storm with you; we’re here to help you navigate it effectively and come out stronger on the other side.
