7 Ways Small-Business Owners Can Cope with Inflation

By Julie Bawden-Davis
January 27, 2022

SUMMARY

As the price of goods and services rises across the nation, small-business owners are feeling the pinch. Consider using these tactics to combat rising inflation at your company.

Small businesses that weathered the last two years face a new challenge: rising inflation. According to the Bureau of Labor Statistics, the all-items index rose 7.0 percent for the 12 months ending December 2021—the highest increase in 40 years.

The looming effects of inflation, combined with the loss of income due to the COVID-19 pandemic and supply-chain issues, can threaten small-business profitability.

According to the Business.org report The Effects of Inflation on US Small Businesses in 2021, featuring compiled data from the Consumer Price Index and an anonymous survey of 700 small-business owners, 60 percent of business owners are concerned about the financial health of their companies and 47 percent report decreased profit margins.”

Increased Wages and High Cost of Goods

Joe Stefani owns Desert Cactus, an e-commerce shop on Amazon with NBA, NHL, U.S. Military and college and university licensing deals. “We’re finding the higher inflation rates are causing substantial increases in wages and the cost of consumer product goods,” he says.

“Some entry-level jobs for our business have seen 30 percent wage increases,” Stefani continues. “Raw materials for the production side of our business have also seen multiple price increases in a short period of time. For example, our raw materials for making stickers have increased 26 percent through two price increases in just six months.”

For many of today’s businesses, inflation is a new experience, notes James Cassel, chairman and co-founder of the investment bank Cassel Salpeter. “Most business owners have experienced minimal inflation or even pricing deflation,” he says. “Today’s small businesses need to be creative in their approach to dealing with inflation, as it’s not likely to go away anytime soon.”

Steps That May Help Your Business Address Inflation

Key insights from small business owners reveal steps you can take that may be able to ease inflation’s effect on your business.

1. Streamline and automate processes.

Stefani found that reorganizing his company’s warehouse saved money. “We invested $5,000 in new shelving. After installations, we found it nearly doubled productivity.” Improving processes may mean exploring automation for your company, suggests Ben Johnston, COO of Kapitus, a provider of growth capital to small businesses. “As the cost of labor continues to climb, re-examine processes,” he advises. “Could time-intensive work be automated? Is there software that can be deployed to automate business processes like scheduling, order taking, billing or collecting payments? Is robotic processing an opportunity when manufacturing a good or completing a repetitive task?”

2. Analyze profit margins.

“Examine your profit margins carefully,” says Sam Barrante, an e-commerce entrepreneur. “Start by re-evaluating your costs and then analyze what margins you’re facing in today’s economy. From there, start looking into solutions to increase those margins, while continuing to ensure quality products and services.”

3. Improve productivity.

The more quickly and efficiently you and your employees work, the higher your profit margins are likely to be. “Use technologies and apps that track and improve productivity,” says Cassel.

“The labor pool is very limited right now, so make sure to remain sensitive to employee needs and feelings while seeking to improve productivity. As inflation rises, employers and employees are in this together. It’s important to communicate that.”

4. Cut expenses when and where possible.

Reduce wherever you can, advises Bradley Katz, CEO and co-founder of Axon Optics, a therapeutic eyewear provider. “Consider downsizing your office,” says Katz. “For example, my business uses a hybrid remote/in-office model that allows the flexibility to move to a smaller, less expensive office.”

Also check if your company is paying for products or services that aren’t being used and cancel those items. Also consider substituting materials. You may find alternate products or ingredients that will save you money.

5. Stock up on supplies now.

Evan McCarthy has helped to insulate his company against inflation while also addressing supply chain issues by stocking up on core materials. “We reorganized our warehouse and now have pallets full of supplies reaching to the ceiling in the 10,000-square-foot space,” says McCarthy, the president of Sporting Smiles, which provides custom dental products. “We stocked up, because every time we ordered supplies, the price kept rising. Our cardboard box supplies had three major increases in 2021.”

Also consider renegotiating contracts with suppliers and buying large equipment now, as prices are likely to increase.

6. Raise prices judiciously.

While raising prices isn’t ideal, it may be helpful in combatting inflation’s effect on your business. Avoid turning off customers with dramatic across-the board price increases. Instead, raise prices slowly in modest increments and be strategic. Choose areas where customers are less likely to notice.

7. Be ready for new customers.

“Inflation automatically creates new customer segments, so go after them,” suggests Stuart Robles, a partner at Briggs Capital, a mergers and acquisitions firm for small and medium-sized businesses, and co-author of The New World of Entrepreneurship: Insiders’ Guide to Buying and Selling Your Own Business in the Digital Age. “Inflationary periods are unnerving to many,” says Robles. “As a result, customer segments and market niches previously unreachable can become attainable as your company is seen as a beacon of light in terms of potential lower prices and rates.”

The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.

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Q4 2021: Tech Deal Report

South Florida firm publishes Q4 2021 Tech Investment Banking Report surveying technology deals, industry M&A, and public markets activity

Q4 2021 Healthcare Investment Banking Report

Miami Investment Banking Firm Cassel Salpeter Releases Healthcare Industry Deal Report
South Florida firm publishes Q4 2021 Healthcare Deal Report surveying private placements, M&A, IPOs, public market activity, and trends

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What can SoFla’s startup culture learn from the Theranos verdict? Experts weigh in

By David Lyons

January 8, 2021

As the fallen startup wunderkind Elizabeth Holmes awaits her sentencing for defrauding investors in her failed blood testing company, Theranos, what does the verdict the mean for venture capital investors in South Florida and elsewhere around the nation?

Holmes’s story is startling. She quit Stanford at 19, became a Silicon Valley executive and founded a blood-testing company that made unfulfilled promises of a technology that could revolutionize the industry. The firm was buttressed by the support of private and public sector titans including computer mogul Larry Ellison, former President Bill Clinton and media baron Rupert Murdoch. Former U.S. Secretaries of State George Shultz and Henry Kissinger sat on the Theranos board.

But in 2015, Shultz’s grandson, Tyler, a company employee, turned whistleblower and raised questions about the truth of Theranos’ claims and the Wall Street Journal launched an investigation.

Holmes last week was convicted in a California federal court of defrauding investors who sank millions into her company. She faces a maximum sentence of 20 years in prison, a fine of $250,000, plus restitution, for the conspiracy count and each of three counts of wire fraud.

The fallout, and South Florida

Post-verdict, commentators are divided on what the trial outcome means for the venture capital industry: Some insist the case was an exception rather than a sign of a flawed system that funnels billions into startups that seek to deliver new innovations to industries ranging from health care to transportation.

RELATED: Former Theranos CEO Elizabeth Holmes guilty of fraud and conspiracy »

Others believe it is symptomatic of a financial space where investors easily can be taken by “fake it until they make it” operators who offer more hype than results.

Meanwhile, South Florida has become a hotbed for startup culture, as more entrepreneurs relocate to the region from the Northeast, California and elsewhere, fueling a growing movement for entrepreneurs who need financing, mentoring and other support that will increase their odds of success.

The South Florida Sun Sentinel asked five experts familiar with the startup industry about the verdicts’ implications and how investors should proceed if they seek to join a burgeoning startup culture filled with both opportunities and risks.

They include:

  • James Cassel: investment banker, chairman and co-founder, Cassel Salpeter & Co., Miami.
  • Scott Jablonski: partner, business, finance and tax team, Berger Singerman, Fort Lauderdale.
  • Jeffrey Sonn: securities litigator, managing partner, Sonn Law Group PA, Aventura.
  • Siri Terjesen: associate dean and professor of entrepreneurship, Florida Atlantic University College of Business, Boca Raton.
  • Mark Volchek: founding partner, entrepreneur turned venture capitalist, Las Olas Venture Capital, Fort Lauderdale.

Impact on venture capital scene

Cassel: I don’t think this is a great “oh my gosh” moment that has come out that should shock people or change things drastically. There has been a very frothy situation with investors very quickly making decisions without maybe spending the time to do appropriate due diligence. And I think to a certain extent that’s what’s happened more in California than other places

Sonn: I think it’s a tip of the iceberg. I’m seeing in the last 10 years, and more so in the last five, the emergence of what we call fintech. Companies are raising small amounts from thousands and thousands of people. In the old days you would go out and raise money in large chunks. Now it’s more decentralized. We’re seeing more and more fraud out there in this type of platform.

RELATED: The SEC lowers the boom on Theranos — but there are more companies like Theranos out there »

Terjesen: I’m very glad this case is so public because people need to know, not only because there are liars and charlatans out there, but also because medical and biotechnology is an extremely risky business and not everyone does well.

Volchek: I’ve heard lots of people talk about focusing more on governance. There is no expectation that every company will be successful. I think they [investors] chalk it up to a loss and move on. I think they will say they will do more diligence. In this case there was so little oversight and so little governance. I was shocked when I saw the company was founded literally more than 15 years ago. This was a long drawn-out process of something that never worked.

How can investors avoid disaster?

Sonn: Obviously when it comes to a private deal, I think audited financial statements are key. People should not be afraid to ask. Number two, check the backgrounds of the principals. Find out if they have past bankruptcies, past tax liens, or past business failures.

You go to wherever the principals are and search the local courthouse websites to see what kind of litigation they’ve been involved in. When people invested with Elizabeth Holmes, how many of them paid attention to the fact she dropped out as a freshman from Stanford? How many paid attention to the fact she had no medical background?

Terjesen: When I look at this case, I feel like there is a halo effect happening such that once that [Holmes] got legitimacy from certain individuals and organizations, everyone else took her at her word.

RELATED: The Elizabeth Holmes story is not about the black and the blinks »

Naturally many people wanted to see a success story of a young smart woman in the medical space. Certainly, multiple people should have dug deeper and there wasn’t very effective governance. I hope it makes people more willing to do deeper due diligence in the future. I personally find it hard to attribute the lack of oversight to one particular individual, whether it was the chairman of the advisory board or the chief scientist.

Joblonski: Most venture capitalists I’ve worked with — if you think about the nature of what it is — it’s a higher risk investment that they expect to be illiquid for a while.

Professional investors in the venture space all do a basic level of due diligence because it’s high risk, because it’s illiquid, because it’s long-term and there is a great opportunity for an exit. The experienced venture investors … they have methods and they sort of get to know these founders and startups and emerging companies.

Volchek: We’re active. We get to know the management teams. We also do a lot of diligence up front. I think our diligence focuses on the founders. We certainly do background checks.

We spend a lot of time with individuals before making investments. We try to get to know folks. What I recommend to individuals is to invest in a fund, which is somewhat self-serving. People invest as a group rather than as individuals. It might be easy to fool one person, but it’s hard to fool 50 people in a room. I think it’s important to have lots of folks looking at something.

What startups should be doing

Joblonski: You don’t want to mislead investors, no matter at what stage of investment you are. That’s just the bottom line. The devil is in the details. It centers around the anti-fraud provisions of state and federal securities laws. The general advice is you don’t mislead. You should be as transparent as you can be. Investors want transparency, even if something isn’t rosy.

RELATED: Were you victimized by South Florida’s most depraved scams? »

Terjesen: At FAU in our classes we are absolutely teaching students how to speak transparently to investors and also how to consistently do due diligence in all parts of the business. We do that through classes and also having guest speakers who are successful entrepreneurs who have been there. And we can also use cases like this to show what happens when they don’t get this right.

What of South Florida’s future?

Joblonski: It’s exciting that our area geographically is seeing the volume of entrepreneurial activity in a variety of sectors that just don’t involve real estate funds. It is something that has been slow to move but has been taking off.

You’ve got a lot of people moving here. You’ve got sophisticated financial services people coming down in droves. You’ve always had the influx of diversified capital. Are we going to be Silicon Valley? No. Are we going to be Boston? No. Maybe we’re going to be our own brand of innovation locale. There is so much opportunity.

 

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Is the FDA’s Accelerated Approval of Molnupiravir Setting a Pharmaceutical Standard?

By Justin Honore

January 7, 2021

Ira Leiderman, Cassel Salpeter

In late December, the U.S. Food and Drug Administration approved Emergency Use Authorization of Pfizer’s Paxlovid, a pill to help treat COVID-19. The next day another pill, Merck’s Molnupiravir, was approved. This marked a big step in the fight against COVID-19, especially with these pills now available in several states. The pace at which these drugs were given the green light, though, is giving medical professionals questions and concerns. Will Molnupiravir’s and Paxlovid’s accelerated production set a new standard for pharmaceutical pill production, for better or for worse?

Dr. Kishor Wasan, Chief Medical & Scientific Officer at Skymount Medical U.S., has vast experience with drug development. He is an award-winning pharmaceutical scientist and he has published over 240 peer reviewed articles on lipid-based drug delivery and lipoprotein-drug interactions. Dr. Wasan says this accelerated approval and production isn’t a new process for the FDA or pharmaceutical researchers. So why is it drawing so much attention?

“It’s been around. The FDA is not actually skirting their processes: They’re just saying, ‘Hey, use this process.’ What is happening is this authorization is now being used a lot,” said Dr. Wasan. “The general public probably didn’t even know about it because it was probably only used in varying situations people probably didn’t know about.”

Since the initial vaccine was first made readily accessible to Americans, two variants have spread relentlessly, with the current dominant variant, Omicron, overwhelming hospitals. With these compounding factors at play, has there been a forced standard change for drug approval, one that will guide future authorization? Dr. J. Wes Ulm, a physician, medical researcher, and clinical genetics resident at the University of Pittsburgh Medical Center, who has a focus in translational medicine and has applied data-mining tools toward drug discovery and repositioning said, simply, “no.” However, according to Dr. Ulm, the FDA has been willing to shift aspects of its approval approach because of COVID’s public health urgency.

“It’s not only mortality from COVID 19 that’s been so high, but mortality from heart attacks, mortality and morbidity from strokes, from gallstones, from car accidents, from sports injuries, that’s gone up significantly because we just don’t have the staff to care for people,” said Dr. Ulm. “That’s the sort of public health emergency overwhelming hospitals that has led to a genuine rethink at the very least in the EUA process and even potentially for full approval or in the steps leading up to it.”

The key to enabling a fast-tracked approval process lies in Emergency Use Authorization that the FDA has at its disposal. Ira Leiderman, Managing Director at Cassel Salpeter and Company, said this emergency use authorization is one of many tools in the FDA’s tool belt. We asked him why, then, the FDA has been using this approach, and why it could be effective for these different forms of COVID-19 treatments.

“The FDA uses the data collected by the developers of the products looking at safety and efficacy from Phase 1 studies and ultimate efficacy from large Phase 3 studies to grant this emergency use authorization which will allow these companies to sell the products and at the same time allow them to continue collecting data and continue their filing process to get full product licensure,” said Leiderman. “This is not a cutback in quality, it is just the stop gap measure that is one of the tools the FDA has to expedite approval of products that are important and in need for public health purposes.”

At first glance it sounds like steps are being skipped when authorizing “emergency use,” but Dr. Wasan said the benefit risk analysis is heavily weighed. According to Dr. Wasan, all COVID treatments have had a limited number of patients because of the urgency of the decision, but as more data comes in, how the pill is prescribed could change. This limited data was one of the concerns in the Molnupiravir approval process which saw the FDA vote 13-10 in it’s initial recommendation.

“The initial data looked really great, it looked like it was really safe and that it seemed to have significant efficacy, but as they started to get more and more patients, they found that the efficacy actually started to go down and there were safety concerns,” said Dr. Wasan.

Moving forward Dr. Wasan can envision other cases where developers utilize already developed drugs and then modify them like they did for the COVID-19 pill as well as start the conversation with the FDA about the drug approval process before they present it to them.

 

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