Dark Days for Small Businesses

November 1, 2007

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Economic confidence among small-business owners nationwide has hit record lows, marked mainly by the overall economy, increasing cash flow issues and lower selling prices, as well as costs of health care, materials and labor. Meanwhile, the U.S. Small Business Administration appears more responsive to small firms.

Small-business owners in the United States have nary a rosy picture of their situation. Owners throughout the nation are increasingly worried about the economy, as conditions worsen in most business sectors continued to decline this month, according to Discover (via Inc.com).

Out of 1,000 owners surveyed nationwide, only 35 percent said they felt economic conditions for their businesses were improving, down from 40 percent in September. Even fewer rated the economy as "excellent" or "good."

Economic confidence among small-business owners last month fell to its lowest point in a year, marked mainly by increasing cash flow issues, according to Discover's monthly survey of 1,000 small business owners and 4,000 potential users of small business products and services. Overall, Discover Small Business Watch, the monthly index of the economic confidence of the nation's 22 million businesses with five or fewer employees, dropped to 96.8, down from 99.2 in September and the lowest level since the index was launched over a year ago.

Moreover, despite the National Federation of Independent Business Small-Business Optimism Index having risen one point last month to 97.3 (1986=100), NFIB's Index has been below its historical average for 17 of the past 18 months. It has been below 100 all year, reflecting sub-par growth of the economy.

Of the 31 percent of owners reporting lower earnings compared to the previous three months, 42 percent of NFIB survey respondents cited weaker sales — down two points — 16 percent each cited higher materials costs including energy, and 10 percent blamed higher labor costs. Six percent cited higher insurance costs, and 3 percent blamed lower selling prices for the adverse performance of profits.

Fewer small-biz owners have robust hiring plans, too. According to the latest OPEN from American Express® Small Business Monitor, hiring plans among small business owners are at their second lowest point in the seven-year history of the semi-annual survey of business owners.

This month's AMEX announcement reports:

This fall hiring plans among business owners have dropped, with three in ten business owners reporting plans (31 percent) to hire full and/or part-time staff in the next six-months. That is down from 34 percent in fall 2006, 37 percent in fall 2005, 35 percent in fall 2004, 34 percent in fall 2003 and 26 percent in fall 2002.

Nonetheless, growth remains a top priority for entrepreneurs. More than one-third (37 percent) of small-biz owners reported to AMEX's OPEN team that their company's single most important priority over the next six months is growing their business, on par with 35 percent last fall. In fact, more than half (57 percent) of business owners are willing to take on risk in order to grow their business, unchanged from 2006.

Key takeaways from the OPEN survey findings include the following:

Health care is cited by one in five small-biz owners (21 percent) as the issue that will most sway their decision on the next president of the U.S. (followed closely by homeland security);

Cash flow remains a constant concern for business owners, as the number of entrepreneurs experiencing cash flow issues remains on par with this time last year (49 percent versus 47 percent);

Some good news — much fewer business owners report having lost sales as a result of higher energy costs (17 percent), down sharply from fall 2006 (31 percent), which suggests that many are adjusting to higher energy and gas costs;

Entrepreneurs plan to make capital investments over the next six months as an avenue to business growth, investing most heavily in the area of technology (45 percent); and

Business owners do not believe the increase in minimum wage is offset by small business tax breaks included in the law.

Federal agencies, meanwhile, have improved their responsiveness to the concerns of small-business owners, according to a report by the U.S. Small Business Administration's Office of the National Ombudsman (via Inc.com). The annual report grades government agencies on the timeliness, quality and level of assistance offered to owners struggling to comply with federal regulations.

The SBA also has announced it is streamlining loan packages to require less paperwork. Most loan packages received by the SBA from lenders today are incomplete and require rework, and the SBA's reforms are meant to improve on this. The SBA commits to responding with a decision within 45 days of receiving loan packages that are complete.

Jeez, though. Is it all doom and gloom? Entrepreneurs and small-biz owners, weigh in and let us know how you're doing.

Resources

Small-Business Optimism Hits Record Low by Angus Loten Inc.com, Oct. 29, 2007

Discover Small Business Watch (September 2007) Discover, Sept. 24, 2007

October Small-Business Optimism Index National Federation of Independent Business, Oct. 9, 2007

Small Business Owners Hold the Line on Hiring and Remain Focused on Growth in Uncertain Economy OPEN from American Express® Small Business Monitor, Oct. 1, 2007

Report: Feds More Responsive to Small Firms by Angus Loten Inc.com, Oct. 29, 2007

SBA Loan Program Reform Initiative Unveiled U.S. Small Business Administration, Oct. 25, 2007

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