Despite continuing economic instability, optimism is surging among industrial small businesses. Most believe their businesses will grow over the next 12 months, says the Industrial Small Business Outlook, a survey that drew responses from a record 5,000 industrial small businesses nationwide. In fact, 75% of participants predict bottom-line growth in the coming year—with one-third of respondents forecasting "significant" growth.

Why are they so upbeat? The answer: entrepreneurial spirit. The study reveals that these small companies—with an average of 6 employees—are refusing to be discouraged by tough economic conditions and are directly confronting challenges. To overcome obstacles, they are utilizing tools such as the Internet to expand their market and boost sales opportunities. In addition, they are leveraging their resources to better manage credit and cash flow.

The Internet-based survey, conducted by Thomas Regional and MasterCard International, found that two challenges have intensified for these businesses in the past year—controlling costs and increasing sales.

Most companies participating in the survey (54%) say that "keeping costs down" is an increasing challenge. Of those who cite cost containment as a major concern, nearly half indicate that they are facing it head-on while 43% view cost savings as an opportunity in the coming year. Other industrial small businesses reporting rising cost reduction pressures are eyeing alternative strategies to stay in business, with 56% stating "increasing sales" and 44% mentioning "opening new markets" as opportunities.

The second critical challenge—boosting sales—was cited by 43% of all respondents. However, 72% of those who point to sales as an intensifying challenge also state that the ability to "increase sales" is an opportunity in the coming year, and say they are confident they can meet this challenge head-on and overcome it. Fifty-one percent of the participants who think sales is an increasing challenge believe that "opening new markets" will provide an opportunity.

To seize more sales opportunities and broaden their market, many industrial small businesses are turning to the Internet. Twenty-nine percent of respondents sell online, and 40% of those are selling more online now than they did last year. Of those that have upped their online selling, 53% attribute this increase to their ability to expand into new markets.

Buyers are also benefiting from the Internet. They are using the Web to generate opportunities—in particular, to meet new vendors beyond their geographical boundaries. In fact, 80% of small businesses are buying products and services online. Of those businesses that buy online, 40% say they are buying more this year and 44% expect to buy more online in the coming year. Online buyers say it's greatest advantages are that it saves time (57%), it's easier to place orders online than offline (56%) and it saves money (32%).

"The Internet has proven to be a lifeline for industrial small businesses, allowing them to reach new targeted audiences in a cost-effective manner," says Eileen Markowitz, president of Thomas Regional. "As more products and services become available online in the coming year, we expect to see an increase in online activity, not only in sourcing information, but in e-commerce and requests for quotes for custom work. Thomas Regional.com helps buyers and sellers find one another quickly and, in today's economy, this is more critical than ever to the bottom line."

Another way that industrial small businesses meet challenges is by using payment cards (credit, debit and prepaid cards) to help manage operations and cash flow.

"Sixty-five percent of small industrial businesses agree that accepting payment cards simplifies collections and 63% say it improves cash flow," says Steve Abrams, senior vice president, MasterCard Corporate Payment Solutions.

These small businesses are discovering that payment cards make managing receivables easier. By accepting payment cards and eliminating the standard purchase order, sellers no longer need to track receivables since they are efficiently paid by the payment card issuers. This is critical for these small outfits since 32% of respondents report that receivables are coming in slower than they used to and 63% say they are coming in at the same rate.

In addition, 56% of respondents say payment cards eliminate the need for credit checks for new customers. Online sellers, especially, are enjoying significant benefits—80% of them say it simplifies collections, 79% report it improves cash flow, and 68% mention that it eliminates the need for credit checks for new customers.

The benefits of accepting payment cards are not just financial. Forty percent agree that it improves relationships with customers since they like using payment cards. One out of three (35%) say that customers buy more when they can use a payment card. For online sellers, these attributes are even more compelling with 52% saying it improves customer relationships and 45% saying that customers buy more.

Using these cards for purchasing also brings substantial benefits—in particular it helps preserve cash and enable companies to run smoothly. Industrial small businesses rely on payment cards for their operations, from purchasing raw materials (56%) and equipment and machinery (53%) to overhead and general business expenses (35%).

By using and accepting payment cards, industrial small businesses gain quick access to the capital they need to operate, invest in and grow their business. Plus, new payment solutions offer innovative security features, which help to inspire confidence among buyers and sellers to build business online. In fact, 53% of respondents assert that payment cards have become more important to their business over the past year.

"Just as today's industrial small businesses are fast discovering that they can gain new efficiencies and advantages from shopping and selling online, so too are these same businesses quickly realizing that the payment card is quite simply the best way to pay and receive payment over the Internet," says Philip Philliou, vice president, e-Commerce and Emerging Technologies, MasterCard International.

Sources: Despite Volatile Economy, Industrial Small Businesses are Optimistic
About Growth and Electronic Commerce
Press Release, Oct. 16, 2002

New Tacks for Tough Times
Roger Franklin
Business Week, Oct. 16, 2002
http://www.businessweek.com/smallbiz/content/oct2002/sb20021016_9116.htm