Aug 7, 2014
Financial situation improves for small businesses
U.S. – More small business owners say their company’s current financial situation is good, yet their outlook for the next year has not changed significantly, says the ‘Wells Fargo/Gallup Small Business Index’.
The overall index score increased slightly to positive 49 in July, up two points from positive 47 in April. The score, which measures small business optimism, has increased six of the last seven quarters. Small business optimism is now at its highest point in more than six years, however it remains well below pre-recession levels.
The present situation – how business owners’ rate current conditions for their businesses – is the main contributor to increased optimism in the latest survey. The present situation score is now at a positive 18, up four points since the April survey and 14 points from the same period a year ago. Specific factors that contribute to the improvement include:
- Small business owners are feeling better about their current business financial situation, with 62 per cent rating it as very or somewhat good, up from 57 per cent in the second quarter 2014.
- More business owners report their company’s revenues have increased, with 43 per cent indicating revenues are up in the past 12 months compared with 36 per cent in April.
- Cash flow over the past 12 months also is at a six-year high. In the survey, 55 per cent of business owners report their cash flow has been very or somewhat good over the past year, up from 50 per cent in the second quarter of 2014.
- Ease of obtaining credit in the past 12 months is up significantly – 32 per cent of small business owners say that it has been very or somewhat easy to obtain credit in the past 12 months.
At the same time, the future outlook for business owners in the July survey was relatively unchanged, down two points to positive 31 from positive 33 in the second quarter. In three surveys conducted in 2014, the percent of business owners who think their businesses’ cash flow, financial situation, and revenue would improve over the next 12 months has not moved significantly. The percent of business owners who expect to increase capital spending in the year ahead is the same as those who plan to decrease (25 per cent).
“The latest index scores show small businesses have made gradual progress since the economic downturn – with modest improvement in the economy, healthier small businesses are growing revenue and have stronger cash flow today,” says Lisa Stevens, head of small business for Wells Fargo. “However, we know many businesses still face challenges in the marketplace and it’s reflected in the survey results. Many continue to wait for more improvement in their businesses and the economy before they express confidence in the year ahead.”
Business owners report that the biggest challenge they face is attracting customers and finding business (13 per cent), followed closely by government regulations (11 per cent), financial stability of their business (11 per cent), and the economy (11 per cent).
When it comes to generating new business, small business owners said the toughest part is marketing and advertising (14 per cent), and competition (13 per cent). Ten percent of business owners said the costs of running a business make it difficult to attract customers and grow. Another 10 per cent said making product improvements or having the latest products is the biggest challenge to growing sales.