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The trouble with rising costs for small businesses

On Behalf of | Apr 2, 2023 | Business Bankruptcy

As a business owner, you certainly know that costs have been rising over the past few years. Inflation has played a part, as has the strength of the labor market, which is benefitting from rising wages in certain positions and industries. But many business owners are also simply finding that the equipment, parts, materials and supplies that they need are increasing in price, and those costs are being passed on to them.

Naturally, rising costs are causing a lot of financial issues and could cause some small businesses to file for bankruptcy.

Profits have stagnated

Much has been made lately of high revenues for business owners. And it is true that there has been a broad increase of 87% in revenue between July 2021 and July 2022, according to reports. This is a massive increase that is nearly double the total the business was receiving before.

But what happened to profits during the same time? They actually went down by about 4%. Businesses are lucky if their profits have stayed exactly the same. All of these rising costs are simply eating into the profits that businesses would’ve expected to see, and business owners are not making any more money, despite a significant rise in revenue.

Seeking a solution is not as simple as raising prices

Some have suggested that the solution is simply for businesses to raise prices so that they can pay higher wages and/or higher costs for materials. But this doesn’t always work so easily. After all, consumers are also facing high levels of inflation and higher costs. When prices go up, businesses are observing that consumers simply refrain from making purchases at all. So, business owners are caught in a hard position where raising prices means that they don’t have any customers, but keeping prices low means that they’re not making any money.

Have all of these factors combined to cause you to consider bankruptcy as a business owner? If you are thinking about taking this step, be sure that you seek legal guidance so that you can explore all of the legal options at your disposal.