How Do Rising Oil Prices Hurt Small Businesses?

The world anxiously watches the upheaval in the Middle East, trying to determine how this chaos could disrupt the world’s oil supply. Oil prices are on the rise and when oil prices soar, everyone feels it – especially local businesses.

According to government estimates, small businesses create 70 percent of the nation’s jobs – and small businesses are being hit especially hard by the increase in oil prices. What do higher oil prices mean for these smaller businesses?

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Every penny increase in the cost of a gallon of gas rips more than a billion dollars from the economy each year. That’s money taken out of the hands of consumers – people who shop at local retail stores, eat at neighborhood restaurants, buy cars from local dealerships or hire local contractors to repair or upgrade their homes.

Given that consumer spending makes up roughly two-thirds of economic activity, the increase in gas prices is a considerable concern for local small businesses. Recent surveys have shown that consumer confidence is increasing, but as the numbers increase at the gas pump, so does worry about the future — creating reluctance for consumers to spend money, which negatively impacts our local economies.

Online Internet retail stores will get hit hard with increased shipping costs – it is more expensive to get products to their warehouse and costs more to ship products out to their customers. Many will need to pass these extra costs on to the consumer – which will cause many consumers to think twice about making the purchase. This will be especially impactful if Internet businesses offer free shipping in order to be competitive – this increase in oil prices will further erode their bottom lines. Since many of the websites are operated by small businesses – many people working out of their homes – you will see many small Internet websites going out of business.

No one will be immune. The higher oil prices will also affect traditional shopkeepers of brick and mortar stores, restaurants and local services because small business owners will now have to pay even more money to get products and supplies to their storefront. Many of these retailers will be forced to pass the higher fuel cost onto the consumer – creating an even more reluctance for consumers to spend.

This volatile situation can start a chain reaction that can cause many small businesses to rethink their spending plans and hiring for the year. Many of our nation’s economists say oil prices are likely to stay high for some time. This could mean big trouble for small businesses for many years to come.

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