5 Spend Categories Small Business Owners and Startup Founders Should Focus on For Growth
June 16, 2022
Small businesses are expecting growth in the second half of 2022. With the economy continuing to open up from its pandemic freeze, startups have an enormous opportunity to capitalize.
However, the environment comes fraught with challenges as well. To facilitate growth, small business owners and startup founders will need to be strategic about how and where they spend their money.
Complex market environments require an organized budget and a clear set of priorities. In this article, we'll outline the current business climate and look at the five spending categories that could have the greatest impact on growth for the remainder of 2022.
Small business in the aftermath of COVID
The last few years have been tough for business. That's true of enterprises of all sizes, but the pandemic and its aftermath have been particularly hard on startups and smaller organizations. Without the same war chests as the big-name players, these firms have had to scramble to keep going during the COVID emergency.
However, COVID has also demanded a new way of looking at the world — a condition that always drives innovation and entrepreneurship. As a result, the tail end of 2022 promises something of a new dawn for small businesses.
While the pandemic put many small businesses in peril, it also provided an opportunity for new ideas to bubble to the surface. The economic dislocation offers just the dynamic situation that startups need to thrive.
Speaking to this dynamic, Intuit estimated that 17 million new startups would be founded during the year. This marks the third consecutive year of record entrepreneurship, according to the tax software giant. Furthermore, the company found that 83% of survey participants said COVID actually accelerated their dreams of founding a business.
However, within this generally bright outlook, there are concerns about the small business environment. High inflation and a murky economic picture have led to some caution. One survey found that 53% of small business leaders have an optimistic view of the economy. This was down from 60% just three months before.
Why small businesses should spend now
Whatever your view of the current economic prospects, you can't escape spending in late 2022. Many companies went into an extreme defensive stance during the pandemic. It's imperative, now that the worst of the COVID shutdowns have likely passed, to resume a focus on growth.
However, the volatile economic situation calls for solid planning. Developing your spending plan for the rest of the year requires a high level of organization. At the same time, you need to prioritize the spend categories in your budget, letting you make the most of the current moment.
The precise plan you devise will depend on your industry and your particular position. That said, there are some general tips you can follow to best allocate resources among competing spend categories. Here are some steps to keep in mind:
Gather Information: Ask your top team members for feedback. You'll have to take their advice with a grain of salt. (Everyone will say their department deserves the highest priority.) But aggregating this advice should give you a good picture of what's truly important.
Triage Your Options: Put your spend categories into tiers: must-haves, desirable projects, luxury initiatives, etc. By focusing on necessary items first, you can see what's left over for more speculative ventures.
Prioritize Growth and Margin: As you look at potential investments, target areas that have the best chance of paying off quickly. This may seem obvious. But many companies lose out on near-term opportunities by overemphasizing longer-term dreams.
Put your spend categories into tiers. [...] By focusing on necessary items first, you can see what's left over for more speculative ventures.
What are the biggest small business spending trends for the rest of 2022?
In many ways, spending through the end of the year will likely resemble other years for small business spending. You'll allocate most of your budget to traditional expenses, like labor, materials, and technology.
However, each year brings its particular challenges and trends. As such, some items will likely move up your budget priority list before the year is out. Here are five categories that will demand more attention:
1. Employee Retention
We mentioned labor among the traditional budget items that get factored into every year's spending plan. Even so, the category will get particular attention in late 2022. The COVID reopening has created a tight labor market, meaning that holding onto your top talent has become a major concern.
As such, you'll need to target retention even more than usual. Consider the impact of rising wages. At the same time, think about the extra incentives you might need to put in place to capture the best candidates available.
2. Inflation Impact
Pay rates aren't the only costs that are rising in 2022. With the highest pace of inflation in decades, many expenses are likely to rise. This can become a budget-buster.
Given this dynamic, you'll need to keep inflation in mind as you plan your spending. Once again, concentrate on your must-have purchases, knowing that higher costs might cut into your ability to afford other items on your wish list.
3. Social Media/Influencer Marketing
Marketing has changed dramatically in recent years. Small businesses can take advantage of these trends, microtargeting the customers best positioned to appreciate their offerings.
Consider shifting your marketing budget more towards social media and influencer partnerships. A well-chosen campaign can provide a boost in ROI for your advertising investment, allowing you to get more out of each dollar you can afford to commit to this part of your expansion.
4. AI and Data Analytics
The economy has seen a long-term trend toward big data. However, the highest-end AI and data analytics products have often been out of reach of smaller organizations. As technology advances, though, these tools become more accessible for small businesses.
Take advantage of this trend. Research products that will help you get the most out of your operations. By boosting productivity and helping you reach your intended customers, your investment in this category can pay off in higher sales and better efficiency.
5. Post-COVID Tech Migration
Depending on your business, you likely put some remote working processes into place during the pandemic. However, those likely developed in a somewhat improvised nature — you had to move quickly and create the best system possible under panic conditions.
Now is the time to build a more robust system. Companies are spending more than ever on digital and cloud technologies. You can keep up with this trend by solidifying your tech backbone now, before the next crisis hits.
Companies are spending more than ever on digital and cloud technologies. You can keep up with this trend by solidifying your tech backbone now, before the next crisis hits.
Getting the most out of your 2022 budget
To make the most out of the opportunities available in 2022, business owners will have to look carefully at their priorities. Accelerating growth at your startup or small business requires a strategic outlook and rigorous planning.
The information provided here should give you a good head start in prioritizing your spending. That way, you can maximize your ability to succeed while minimizing the risks brought on by the various economic headwinds.