2 business owners explain how they're navigating the need to raise their prices and the 'revolving door' of hiring

• The last year has been a perfect storm for small businesses with a labor shortage and inflation.
• With things like butter and eggs getting more expensive, bakery Butter& raised the price of its designer cakes.

The people of the Bay Area wanted their cakes.

Cake shop Butter&, a San Francisco Bay Area business, had landed on a valuable niche during the pandemic with their quarantine cakes, which are meant to serve just one to two people. At the start of the pandemic, Butter& snapped up some of the workers laid off and furloughed across the restaurant industry to help meet the demand they were seeing.

But hiring wasn't as easy in 2021 for Butter& — just like for many other businesses competing for workers.

"When we would interview people, sometimes they wouldn't show up or they wouldn't be as interested or as excited as we would want them to be," Amanda Nguyen, cofounder and CEO of Butter&, told Insider. "And because we compensate so well and because it takes so much time to train someone to be a cake maker, we're also very wary of bringing someone into our tight knit team who isn't as invested in the role as we are in them."

Flower and plant shop The Fernseed, which has two locations in Tacoma, Washington, has also faced hiring problems. The business hired eight people in 2021, but only two of them are still on staff.

They aren't alone. Hiring challenges and turnover continue to be a problem for many small businesses as they experience the ongoing effects of the Great Resignation and elevated inflation.

"The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions," Bill Dunkelberg, chief economist of the National Federation of Independent Business (NFIB), said. "As we move into the second half of 2022, owners will continue to manage their businesses into a very uncertain future."

Not all small businesses are finding the people they need to fill open positions

Job openings are still elevated in the US compared to pre-pandemic levels, but according to the jobs report from the National Federation of Independent Business for July 2022, 49% of owners reported "job openings they could not fill in

It hasn't been easy for Katherine Raz, owner of The Fernseed, to find workers — especially given the narrow talent pool of experience with floral design. However, five of the seven people she currently has on staff, excluding herself, were hired in 2022.

"We've been sort of having a revolving door of hiring for about a year," Raz said, who noted her business is pretty much always hiring now.

She said the business is relying more on employee referrals and an open job form on its website to find applicants than on seeking out people on Indeed and Craigslist, two sites the business has used to find workers.

"I wouldn't say that we have a challenge necessarily in finding the right people for the positions," Raz said. "It's just that we don't get as many applicants as I might expect with the kind of specific background as it relates to floral design."

Turnover has been an issue for the plant and flower shop. The reasons people have left differ; for a few, they left for relocation reasons. Raz said another reason could be because they were "fatigued by just the ambiguity of working during the pandemic."

Nguyen said one reason it may have been difficult to hire for Butter& in 2021 was because "there were a lot of folks who actually made more on unemployment than they did in the food industry."

Butter& wasn't able to hire any bakers for 2021. The business had three people start so far in 2022 and are looking to hire an operations specialist and one or two production assistants.

With only one person recently giving notice, the cake business has had high retention. Nguyen said Butter&'s compensation may be one thing that has always helped attract and retain talent. The business has recently increased pay by 33%.

"How much you spend on your team as a percentage of your revenue is something that I pay very close attention to, and it's an area where I like to be as generous as I possibly can because finding people is really hard," Nguyen said.

Inflation is almost at a four-decade high, and that means businesses have to think about increasing prices and its impact on their workers

Another issue facing small businesses has been high inflation. Raz is one business owner having to make the choice on whether she should raise prices.

"We're really trying to take an active approach in making sure that as the per stem price for flowers goes up, if we need to, we're raising the price of certain products for delivery on the website," Raz said.

"On the hard good side with pottery and everything else, shipping costs have gone up, materials costs have gone up. So as soon as we're getting notifications from one of our vendors that prices are increasing, we will go in the system and update prices," Raz added.

Nguyen and her fiancé Ted Moran are not only cofounders of Butter& but also are two of the cofounders of Pastel, a delivery service that works with other businesses in the area. They have found that some of the businesses working with Pastel have had to increase their prices. With various ingredients being more expensive, Butter& just recently raised the price of their signature designer cakes.

A cost-analysis of some of the ingredients used at Butter& and shared with Insider shows the cost of butter in May 2022 is over 100% higher than February 2021. The cost of eggs has also increased by over 80%.

Businesses are also thinking about how they can help their team with inflation being so high. For Raz, she previously did a 5% cost-of-living raise for everyone on staff.

"I just figured we can absorb that somehow, but right now I'm looking at pay as a retention tool," Raz said.

Inflation may have cooled in July, but businesses are still considering increasing their prices as they deal with rising costs. A NFIB survey conducted from June 31 to July 7 found 70% of small employers said they were planning to raise their average selling prices in the next three months.