Small Business Optimism Grows, but Entrepreneurs Say Worst of Economic Woes Not over Yet, According to the American Express® OPEN Small Business Monitor
Hiring plans hit all-time survey low, dropping below fall 2002 level
NEW YORK--(BUSINESS WIRE)--More than half (55%) of entrepreneurs have an optimistic outlook on near-term business prospects, up from 45% in March 2009, according to the American Express OPEN® Small Business Monitor, a semi-annual survey of business owners. One quarter (26%) report expanding opportunities for their business, up from 15% from a year ago, but six in ten (63%) do not think the worst of the U.S. economic woes are over, and nearly one in six (17%) say they risk going out of business in the next six months because of the economy.
“For the first time since 2007, the majority of small businesses are optimistic about the near-term future, in part because of less competition, however some of the less healthy firms are dipping into cash reserves and personal assets to stem the tide of declining sales.”
“There appears to be a dichotomy where many small businesses are seeing signs of improvement while other firms are still struggling to make payroll,” said Susan Sobbott, president American Express OPEN. “For the first time since 2007, the majority of small businesses are optimistic about the near-term future, in part because of less competition, however some of the less healthy firms are dipping into cash reserves and personal assets to stem the tide of declining sales.”
Among those businesses reporting growth opportunities for their firms, 44% say these opportunities come as a result of less competition. The ability to renegotiate equipment leases and supply contracts (13%) and lower real estate costs (12%) also contributed to these firms’ growth mindset. Overall, when asked for the primary way they address cash flow issues, 32% of business owners said they use personal or private funds, up 9 percentage points from March. More than a third (35%) say the recession has caused them to tap personal assets, on-par with the March reading (37%).
Although small business optimism is on the upswing after hitting its all-time low a year ago, the American Express OPEN Small Business Monitor shows that business are not shifting to hiring mode. This fall, just under one quarter have plans to hire (23% vs. 28% this spring), which is the lowest reading in the history of the Monitor (falling below the fall 2002 recession level of 26%), and plans for capital investments equal the record setting low from Spring 2009 (42%).
With hiring and capital investment plans on hold for most, business owners are taking a conservative, back-to-basics approach to managing their firms:
In addition, business owners continue to do everything they can to protect their employees. For example, thirty-five percent of small business owners have tapped personal assets as a result of the recession, twenty-seven percent have stopped taking a salary and seventeen percent are working a second job, comparable to six months ago. At the same time, fewer business owners are laying people off (15%, down from 23% in the spring) or cutting benefits (8%, versus 16% this spring).
Even as hiring plans are not in the cards for most business owners, the nearly one quarter planning to hire are upbeat. These business owners are more willing to think the economy creates new opportunities for their business (36% vs. 31% overall) and seek out alternative tactics to manage their business. In addition, more than three quarters (78%, compared to 65% overall) of those hiring will use online marketing techniques to boost business and nearly half (46%, vs. 39% overall) will negotiate flexible payment methods with their suppliers/vendors. On average, entrepreneurs with hiring plans work about one-half hour longer per day than business owners overall (more than 11 hours 45 minutes vs. 11 hours 15 minutes).
Regardless of hiring plans, one in ten business owners (11%) say they have recently hired someone who was laid off from another company because of the recession.
Economy takes toll on entrepreneurs
As business owners work to navigate their firms through the current economic climate, they are plagued by cash flow concerns and the overall stress a challenging economy creates. Nearly seven in ten entrepreneurs (68%) are “stressed out” by the economy and three in ten (31%) say that the current economy has caused them to question their decision to become an entrepreneur.
The number of entrepreneurs experiencing cash flow issues this fall (60%) is up slightly over both the previous fall (55%) and this spring (57%). The biggest cash flow worry for business owners is the ability to pay bills on time (26%). When cash flow concerns arise, business owners are most likely to dip into their own pockets: 32% of business owners will use personal or private funds, and one in four (25%) will put off purchases. Others will use credit or charge cards (13%), obtain and use a line of credit (12%), lease rather than purchase business equipment (4%), or get a short-term loan in order to improve cash flow (3%).
Looking beyond the basic issue of cash flow, nearly half of entrepreneurs (45%) are looking to access capital from external sources in order to run their businesses. One out of five business owners (19%) say they are experiencing difficulty accessing capital. To secure the funds they need, business owners are tapping a variety of sources, including using a bank loan (14%), using business or personal credit cards (each 13%), tapping personal savings (10%), borrowing from a friend or family member (3%), and private equity/venture capital or home equity (each 2%).
Outlook varies by industry, age, gender, and region
Examining business owners by generation, industry sector, region and gender provides further perspective on the economy. The American Express Small Business OPEN Monitor studies three key industry sectors: retail, manufacturing and services as well as the three generational age groups: Generation Y (18-28), Generation X (29-44) and Baby Boomers (45-63), entrepreneurs by gender and by geographic region.
As the holiday shopping season approaches, businesses in the retail sector are the least optimistic group of business owners across these industries. This fall, more than half of services businesses (58%, up from 53% last fall) maintain a positive outlook, versus just half of manufacturers (51%, on par with 52% in fall 2008) and just under half of retailers (47% on par with 48% last fall). The effect of the economy can be seen to have varying effects across industries:
Gen Y geared for growth, Gen X most “stressed out” and Boomers are cash strapped
Generally speaking, the experience of older and more seasoned entrepreneurs puts them in a better position than younger entrepreneurs to manage through downturns. According to the American Express OPEN Small Business Monitor, however, the tables have turned, and it’s younger business owners who are geared for growth.
The survey found that Gen Y is the most optimistic group of entrepreneurs when compared to other age groups and to the overall sample of business owners. More than three-quarters (80%) of these entrepreneurs have a significantly more positive outlook on business prospects versus Gen X and business owners overall (each 55%), and Baby Boomers (52%).
The optimism of Gen Y entrepreneurs extends across a number of areas:
Women more upbeat than their male counterparts
No less revealing than examining the mindset of entrepreneurs by age, gender also plays a role in shaping the outlook of a business owner.
Businesses in the Northeast struggling to stay afloat; West is most optimistic Along with age, gender and industry sectors, geography plays a significant role in business owners’ outlook on business prospects and the economy:
Additional survey results are available by contacting American Express OPEN. Fact sheets on regional data, women entrepreneurs, by generation and key business sectors are available on request.
American Express OPEN Small Business Monitor, released each spring and fall, is based on a nationally representative sample of 763 small business owners/managers of companies with fewer than 100 employees. The anonymous survey was conducted via telephone by Echo Research from August 11- August 25, 2009. The poll has a margin of error of +/- 3.6%.
About American Express OPEN®
American Express OPEN is dedicated exclusively to the success of small business owners and their companies. OPEN supports business owners with exceptional service and tailored products and services that deliver purchasing power, flexibility, control and rewards to help customers run their business. Specifically, business customers can leverage an enhanced set of products, tools, services and savings, including charge and credit cards, convenient access to working capital, robust online account management capabilities and savings on business services from an expanded lineup of partners. To obtain more information about OPEN, visit OPEN.com, or call 1-800-NOW-OPEN to apply for a card. Terms and conditions apply.
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