We hear a lot about inflation these days – but very few people are asking an extremely important question. How is inflation affecting small business? Inflation often affects small business even more, as Small Business Owners just don’t have the resources that the big guys have. In its simplest terms, what does that mean for your salary offerings?
If someone was making $90,000 a year with inflation. They’re now at $80,000 a year just in inflation. So when it’s time to change jobs. If my current employer has accommodated for inflation, I’m certainly looking for my next employer to accommodate for that inflation as well.
We have a bit of a perfect storm going. In terms of candidates, a couple things have happened over the last couple years. Perhaps you’ve heard about the pandemic – we’ve just lost a lot more working age people than average.
The second thing is we need to consider is in 2020 there were a record number of applications for small business loans. So there’s a couple million people that have started their own businesses, hung their own shingle and have taken themselves off the workforce. There’s also a little bit of voodoo we need to account for here because that number does not reflect solo entrepreneurs that did not apply for small business.
OK – We’ve heard of this gig economy, we’ve heard of contractors, we’ve heard of freelancers and a lot of people with specialized talent. In 2021, 50.4 million people applied for a small business loan, but how many more million people started their own business out of pocket are bootstrapping their business?
How this situation impacts the workforce is really interesting. Prior to 2020, there were 2.8 applicants per position. 2.8 people out there that were available to work for every position being advertised and with all of the factors. That number has been cut in half.
There are now 1.4 people available to work for every position. This obviously makes the candidate market much more competitive. There’s one person, maybe two, out there that are interested or qualified orthe job you are posting and inflation has increased our economy.
What does that mean for a small business owner? How can we possibly attract the talent we need to scale our business and move it forward? A lot of the conversations we’re having with business owners and clients revolve around that. How do we keep up with these prices?
How can we afford to bring people in? And how does it affect the organization? Because obviously if you bring in someone new to the business and they’re making 10% more than someone who’s been there for 10 years, that could cause a little uneasiness in the business and your salary structures are gonna be thrown outta whack.
The idea that we can find a qualified candidate in a lower price range is a tough one because you can find someone in that price range. Are they gonna have these skills experience and capacity you need to scale your business? Maybe.
We’ve talked to many small business owners who just aren’t willing to offer candidates increased compensation. They say “I need them to work in here and understand my business – then I’ll give them a raise.”
That’s just not the economy we’re in. First of all understanding that your starting point must be at least a 10% increase over the current market – just to cover the cost of inflation.
So start with that 10% increase. Just start there. If you wanted to pay 100k, you need to start at 110. Now we need to give them a pay increase, right? And they’re gonna want another 10 or 15%. So now we’re at $120k – $125k for a 100k/year, employee. Crazy and sad, but that’s why it’s important to have the right process in place.
That’s why making sure that your hiring correctly is so important these days – because now we are really investing in candidates and we need to make sure we need to maximize the probability of getting this right.
We need to ensure that they have the experience we need, that they’re gonna bring the capacity, and that they can help us scale the business. They’re not a maintainer. We want someone with capacity. So we’re starting at 10%, then we’re putting the raise on top of that. Now more than ever, it’s key that small businesses are able to recognize not only who might be a good culture fit, but are able to seek out those rare candidates that can bring in outsized experience and capacity to ensure you are seeing a return on the larger salary you will have to pay across the board.
If your small business is looking to grow by adding new capacity, or aren’t sure where to start the hiring process – let us help. Sign up for a free consultation with KeyHire at www.keyhire.solutions/consutation.