In our latest Business Leaders Outlook midyear survey, Chase polled decision-makers at 500 businesses across key industries with annual revenues spanning $100,000 to $20 million to gauge their response to operational challenges and their outlook for the second half of 2022.

Optimism reflected in the annual 2022 Business Leaders Outlook survey, conducted in November 2021, is quickly eroding. The key contributors to this less-than-rosy outlook? Inflation topped the list at 37% (up 20% from 2021), followed by economic uncertainty dropping to second since the last survey at 28% and supply chain issues at 27% (up 16% from 2021).

While many business leaders see these challenges as long term, more than half still say they expect revenues (56%) and profits (52%) to increase for the remainder of the year.

Continuing to believe in themselves

Across-the-board price hikes. Supply chain issues. Shipping delays. The war in Ukraine. Businesses everywhere are feeling the economic strain of these challenges. When participants were asked about the broader economy, results showed a significant decline in optimism for the global, national, local and industry-specific economies compared with the November survey, at levels not seen since the middle of the pandemic.

However, an interesting finding is that the confidence business owners have in their own company’s performance has held relatively steady as they continue to find strength and resilience in surviving previous challenges posed by an ever-changing operating environment. For many, it’s surviving these hard times that has helped fuel confidence — and their resourcefulness.

Unpacking inflation

In the six months since the last survey, inflation seems to have skyrocketed in both the market and the minds of business owners. Nearly all (94%) say they’ve seen an increase in their business expenses, and more than one-third (37%) say their costs have increased by 11% or more.

So what are they paying more for? Just about everything. From equipment, supplies and manpower to make products to the spared the effects of rising prices. Respondents report the highest increases in costs for materials/goods, wages and shipping costs/transportation expenses.

Percentage business expenses increased

Top drivers of rising costs

Planning for a new future with inflation

Most business owners are no strangers to temporary setbacks that require a quick workaround or change in process. But dealing with something as pervasive as inflation calls for more drastic action. According to this latest survey, almost half (48%) of respondents expect inflation to negatively impact their business in the next year, and most expect that many of these rising costs are here to stay.

Expectations for higher costs long term

Business owners realize they can’t fix the economy on their own. When it comes to government intervention, a significantly higher percentage of them want addressing inflation to be a top area of focus (60% now versus 42% in the fall) than want the government to focus on lowering tax rates and reducing credits and deductions (40%) or ensuring financial stability and access to affordable capital (36%).

Rising above rising costs

Despite the effects of inflation, many business owners are finding creative ways to combat higher costs instead of passing them on to their customers. The top two changes to operations include a combination of cutting nonessential expenses (43%) and raising prices on only selected products and services (38%). Sweeping price increases are next, with less than one-third (29%) of participants opting to go this route.

Other inflationary survival tactics include purchasing smaller inventory orders or ordering in bulk, cutting essential expenses, investing in new technology to streamline operations, diversifying or switching suppliers, changing the products or services they offer and getting funding to help with cash flow.

How businesses are coping with inflation

True to their can-do attitude, business owners are rethinking their operations to not only survive but thrive in this inflationary environment. In fact, more than half of respondents expect to see a substantial or moderate increase in revenue/sales (56%) and profits (52%) this year.

David Habib, owner and CEO of Yo Mama’s Foods, shared his insights during a recent interview: “Sometimes you need something that completely disrupts your business in order for you to have the courage to shop around or reinvent your supply chain. If things are going well, you’re not really being nudged. So for us, every price increase is an opportunity.”

Realizing that people are the new currency

Although cutting nonessential expenses is the leading way businesses are responding to inflation, one thing they’re not skimping on is paying their most essential assets — their employees.

Savvy business leaders know that when times are tough and they need to find ways to be adaptive and resourceful, having the right people at their side is an asset, not a cost. More than half (58%) of participants say that valuing and keeping their best employees is how they cope with an inflationary environment — ranking a close second behind resourcefulness with money (62%) and above their ability to move fast as conditions change (53%).

Results from the survey show that business owners are willing to invest heavily in finding and keeping top talent. The main ways they’re doing so are by offering flexible hours and increasing wages (tied at 42%) and allowing employees to work remotely (35%).

When asked about their thoughts on hiring trends, more than half (57%) of respondents believe that increasing wages and benefits to retain employees will continue, 52% see allowing employees to work at home or remotely as the new normal, and 45% say digital commerce is here to stay.

A shift from prioritizing part-time employees to full-time was reflected in the latest survey results — once again underscoring the importance business owners are putting on keeping the best talent in-house.

Despite more than half (59%) of respondents citing worries about the sustainability of the economic recovery as their reason for holding back on hiring, business owners who are moving forward with their full-time hiring plans have a more optimistic perspective: expected sales growth (59%), improved financial position (47%) and employee turnover/retirement (43%).

Revisiting familiar principles in uncertain times

If the pandemic has taught business owners anything, it’s that things can change overnight. There was no playbook for operating during a global pandemic, so businesses were forced to create one. Now many are applying the same principles to surviving their latest round of challenges: inflation, economic uncertainty, supply chain issues, the war in Ukraine. The keys are to be open and ready for change, to find and keep employees you can rely on, and to constantly look for creative ways to adapt.

About the 2022 Business Leaders Outlook Pulse wave survey

This survey was conducted by Chase Insights from June 7 to 21, 2022. It features data from 500 small business owners and decision-makers across the professional services, retail, technology, health care and other key industries. The results of this online survey are within statistical parameters for validity, and the error rate is plus or minus 4.4% for the findings, at a 95% confidence level.

If you haven’t already, explore JPMorgan Chase’s Business Leaders Outlook Survey conducted for midsize businesses.