Is it possible, or even fair, to generalize about the “state” of? all small business? That’s the question that usually lurks behind this column’s regular reviews of small business surveys and data. In one sense, attempts at such generalizations are dubious: the population of small businesses is simply too large and diverse to make sweeping statements based on small sample surveys.
On the other hand, many of these surveys are quite good and long-running, which provides consistency. And, there are some recent entrants into the field that are quite large in their sample size and sophisticated in methodology.
Unfortunately, the answer these surveys and data sets suggest to the question of how small businesses are doing is: things are all over the place.
Good news: current performance, future expectations
Overall, at least compared to the worst years and months of the pandemic, small business performance has improved and appears somewhat stable. In the Census Bureau’s relatively new Business Trends and Outlook (BTOS) survey, most small business owners seem to say things are stable. The shares of those reporting an increase or decrease in recent performance or income have not changed much. Indeed, there have been an increase in those who say their performance is “average”. Not exactly the stuff of breathless headlines, but encouraging. And fewer small businesses in the BTOS say their income has declined recently, from 42% in January to 31% at the end of April.
In the last one Small business credit survey (SBCS), produced by the 12 banks of the Federal Reserve System, the Employer Firm Performance Index returned to positive territory for the first time since 2019.
Things get better when you ask small businesses about their outlook. In Bank of America’s “2023 Small Business Owner Report,” two-thirds of respondents expect their revenue to increase in the next 12 months. This was a slight drop from the previous survey’s findings, but more than in any pre-Covid year.
Likewise, 56% of small business owners in the SBCS expected an increase in their income during 2023. More moderation is found in the BTOS Census, where the proportion of small business owners expected future performance “above average” (over a six-month horizon) has risen steadily over the past five months. Most simply say they expect their future performance to be average.
When they are optimistic about their growth prospects, small business owners look to external credit. In the SBCS, 53% say the reason they apply for a loan or line of credit is growth or the pursuit of new opportunities. According to the Bank of America survey, 82% of small business owners expect to seek outside financing this year, with business credit cards as the top product of choice. (By contrast, only 29% said they intended to seek a bank loan.) In another sign of possible optimism, more than half of respondents in the National Federation of Independent Business (NFIB) sample make a capital expenditure in the last six months.
Bad news: growing pessimism
However, there is much cause for concern in the small business data. Start with the big picture: Small business owners are very bearish about the course of the global economy. In the Bank of America survey, 72% are worried about a recession and only a third expect the state of the national economy to improve. According to NFIB, there are a net negative 47% read whether general business conditions will be better or worse in six months. In other words, deep pessimism.
In fact, the NFIB Optimism Index fell month after month and “for the fifteenth month in a row [is] below the 49-year average.” Interestingly, the “hard” components of the optimism index (mostly “flat”) remain elevated while the “soft” components (eg, “expected”) they have sunk lower.On the face of it, there has never been such a wide discrepancy between the two.
Now let’s look at the actual performance. In the excellent Intuit QuickBooks Small Business Index, small business job growth has fallen for eight consecutive months (see graphic).
The Fed SBCS “expectations index” fell in the most recent survey and remains well below pre-Covid levels (see chart).
Similar signs of decline can be found in the NFIB survey:
- Only 2% of respondents say now is a “good time to expand.”
- Hiring plans have been on a downward trend.
- The share of small businesses planning capital spending is just 20%, the lowest level since March 2021.
If you want it, you can find it
Still, part of the joy and challenge of working with surveys and small business data is that you can find virtually any story you want to tell. While there are signs of a hiring pullback, for example, in the Bank of America survey, a higher proportion of small businesses (34%) expect to hire new employees in the next 12 months than in the previous survey And while the proportion of small businesses with job openings in the NFIB survey is lower than a few months ago, it’s still high compared to pre-Covid.
As always, there’s plenty more to dig into, from funding trends to lingering concerns about inflation and interest rates. Stay tuned for more updates as new findings are released in the coming weeks.
With National Small Business Week currently underway, it’s important to look at the successes and challenges for small businesses across the country. Small businesses make up the majority of U.S. businesses, and because of this, it’s important to highlight the growth seen in the industry and celebrate the importance of entrepreneurs. The main focus of this week should be to recognize the achievements of small business owners, and to make it easier for them to succeed.
One such organization that is working to make that possible is Ikaroa. Ikaroa provides comprehensive services to small businesses to help them meet their goals. From branding and web design, to marketing and social media services, Ikaroa takes the stress out of business ownership and allows small business owners to focus on what’s important: delighting their customers.
Ikaroa’s service also helps small businesses access viable financing through its network of lenders and investors. This is essential for small businesses as they are often unable to secure traditional loans or investments.
According to a recent survey of small businesses by the National Federation of Independent Business (NFIB), over 90% of those surveyed reported that their businesses were doing well or at least just ok. This is good news for small business owners who are struggling to stay in business.
Overall, while small businesses are facing some challenges, there have also been some successes and encouraging stories from around the country. By acknowledging these successes and providing small business owners with additional resources and support, National Small Business Week can help strengthen the country’s economy.