Small Business Insights: 2022 is the year the pivot becomes permanent

Most small businesses continued to pivot this year

The pivot to digital is a well-established trend for small businesses. This year, three-quarters (75%) had to make significant changes to their business due to the ongoing impact of the COVID-19 pandemic. One in four (25%) changed their entire business model. The top three changes they made are:

1. More use of digital technology
2. More revenue from online sales
3. More focus on cutting costs

Online revenue predicted to grow in 2022

Revenue generated online — either directly, from a company’s own website, or from other sources such as social media — will be important to almost nine out of ten small businesses (88%) in 2022. This isn’t limited to ecommerce businesses. Almost three-quarters of brick-and-mortar businesses (74%) say online revenue is important.

Overall, more than two in five small businesses (42%) say they will become more reliant on online sales in 2022 compared to 2021. More than one in ten (12%) already get 100% of their revenue online.

Social media is a vital source of revenue

Revenue from social media now accounts for 33% of small business revenue, on average. Even brick-and-mortar businesses get 22% of their sales via social media.

Online revenue is the top priority for small businesses

Boosting revenue from online sales is currently the top priority for small businesses in the U.S. That’s closely followed by the need to get better results from marketing. Investment in innovation is also high on the list.

Digital technology will be even more important in 2022

Almost all small businesses (97%) say digital technology will play an important role in their business over the next 12 months. Of these, more than one in two (52%) say they will become more reliant on digital technology in 2022.

For many, this isn’t just about running the day-to-day operations of their business, it’s about performance. Four out of five small businesses (80%) agree that they are more likely to succeed if they invest in digital technology.

Rising costs force small businesses to put revenue first

As we’ve seen, small businesses are laser-focused on revenue right now. Our survey reveals why. Inflation is a concern for 97% of them — largely unchanged since our previous Small Business Insights report was published in September. Rising costs are one of the biggest threats small businesses currently face. And many consumers have similar concerns.

Supply chain problems exacerbate cost pressures

The top three cost pressures for small businesses are materials, shipping, and equipment — in that order. Labor costs are also a worry for many (more on this in the Hiring section of this report).

The challenge of higher shipping costs is compounded by the fact that almost three quarters of small businesses (71%) have experienced supply chain problems this year. Of these, 38% expect these problems to continue. Encouragingly, the other 62% say their supply chain problems have already been resolved or that they expect them to be resolved soon.

Two solutions to rising costs: new customers, higher prices

Small businesses are reacting to mounting cost pressures in two ways. First, they want to find new customers. In fact, the urgency to expand their customer base is currently the No.1 cause of stress for small businesses. Second, many say they could be forced to raise their own prices. Almost two-thirds (63%) plan to increase prices over the next three months. Back in September 2021, around three out of five (57%) were considering raising prices.

Hiring remains a high priority for small businesses 

More than two in five small businesses (44%) expect to expand their workforce over the next three months, according to our survey. This suggests the strong hiring trend we revealed in our September Small Business Insights report is set to continue into 2022. Just 3% predict that their workforce will get smaller.

Skills shortages and labor costs remain a concern 

QuickBooks Payroll data released in September shows that most small business workforces are back to their pre-pandemic levels. But labor costs remain a concern for almost nine out of ten (88%). This is largely unchanged since September, when 85% were worried about labor costs.

Small businesses are also still struggling to find talent. Almost one in two (48%) say hiring is getting harder, while just 16% say it’s getting easier. Similarly, two in five (42%) say it’s getting harder to retain skilled workers. Another recent survey commissioned by QuickBooks reveals why: two in five U.S. employees (40%) are currently looking for new jobs to get better pay or benefits.

Wage increases predicted to continue

To attract new talent, more than two in five small businesses (44%) are increasing pay while roughly a third (30%) are hiring younger workers than before. Others are relaxing experience requirements. To retain talent, almost one in two (46%) will increase pay for existing employees during the next pay review. More than a third (36%) will offer larger bonuses.

Positive outlook for 2022 

Despite the challenges, the majority of small businesses (53%) remain optimistic about the economy. Roughly half as many (28%) are pessimistic. Confidence has dipped slightly since our last Small Business Insights report in September, when three out of five (60%) said they were optimistic.

Small businesses with fully integrated online and offline sales (known as “omni-channel” businesses) are the most upbeat. More than two-thirds (68%) are optimistic about the economy.

Many predict growth over the next three months

Seven out of ten small businesses (70%) predict their business will grow in the first months of 2022. Similarly, more than two-thirds (69%) predict higher revenues. More than a third (36%) plan to increase capital investment.

Small businesses need their accountants 

Accountants will continue to play an important role in small business success in 2022. Almost three-quarters of small businesses (73%) have internal or outsourced accounting support. According to them, the top three benefits of having an accountant are:

1. Helping them to make better decisions
2. Saving them money
3. Improving their long-term survival

Small businesses with accountants are also more likely to feel “very confident” they are paying their taxes correctly.

Want more insights?

Find out what 8,000 American workers said about their spending plans for 2022, and how many of them want to start a small business of their own in our New Business Insights report.

Methodology

QuickBooks commissioned Qualtrics to survey 2,000 small business owners and decision makers throughout the U.S. in November 2021. Respondents’ businesses have up to 100 employees and more than $5,000 in annual revenue. Roughly a third (35%) are brick-and-mortar businesses. The remainder are omni-channel, multi-channel or primarily online. A quarter (26%) are product-based businesses, one in two (50%) are service-based and the remainder sell both products and services. Around one in six (17%) are located in rural areas while the remainder are in urban or suburban locations. Percentages have been rounded to the nearest decimal place. Respondents received remuneration.