Small business optimism has risen to 96.9 percent according to the NFIB. Economist Bill Dunkelberg is quoted as saying that current economic growth in the US is based largely on the efforts of small businesses as larger corporates still seem to be stagnating.
In their report, the NFIB found that despite considerable optimism, small business owners are least confident about future sales growth although many felt that the current climate would allow for business growth. Although this may seem like a contradiction, we can interpret this note of caution as an indication that small businesses are ready to invest in growth but will exercise caution in the process.
Although the overall trend since 2008’s low confidence ratings remains positive, the current business confidence rating is still lower than it was in Dec/Jan.
Increased Employment Opportunities
Small businesses are employing more people on average with a greater percentage of businesses surveyed increasing their staff or planning to do so. However, many small businesses reported that they have been disappointed in the quality of job applicants and are having some difficulty in finding candidates with relevant skills. It will be interesting to note whether this results in more aggressive training and development strategies on the part of small businesses seeking to leverage skills.
Sales and Inventory
As previously noted, small business owners remain cautious about predicting much growth in sales. It is therefore hardly surprising to find that inventory levels have been adjusted to match these expectations. Despite increased consumer spending, 11 percent of the businesses surveyed by the NFIB cited poor sales as the biggest problem their businesses face.
However, if we are to take this in perspective, 22 percent and 23 percent respectively said that taxes and red tape were their biggest problems. We also need to take into account that 44 percent of small businesses surveyed actually expect to see improved sales in the coming months while only 18 percent are expecting sales to decline.
Consumers may be pleased to hear that only 2 percent of businesses expect to increase their prices in the near future, but what this is actually telling is that business owners don’t feel that the economy has recovered sufficiently to support inflation. However, reduced fuel prices are contributing to profits for many small businesses as evidenced by a relatively high 26 percent of businesses reporting an increase in compensation for employees.
Small business lending is the highest it has been in 6 years. That’s to be expected with current low interest rates and the number of non-bank players who are offering financing options to the small business entrepreneur.
Banks, particularly smaller banks are feeling the pinch and have begun approving more small business loans than formerly. However, everyone is aware that interest rates won’t stay where they are, and most analysts are expecting the Federal Reserve to declare an interest-rate hike soon. Borrowers are looking to make an upfront deal so that they can accurately predict the cost of their credit. They also prefer the faster loan approval process that allows for a quick loan when new opportunities arise or when stop-gap funds are needed to tide them over for a few months. Traditional banks are going to have to become more innovative in leveraging technology to allow for improved service levels and response times if they hope to regain the ground lost.
Local Businesses Are Winning Customers by Being Local
There’s a growing movement among U.S. consumers towards supporting smaller businesses. Over large corporates. In the first place, they feel good about supporting the ‘small guy’ and their own local economies. 52 percent of consumers felt that they would receive better, more personalized service by supporting local business.
Most of the consumers surveyed didn’t think that they would necessarily get lower prices or better quality products, but more than half said that they would choose small business anyway. Only 8 percent did not prefer small businesses.
A survey of 1000 consumers by Reuters produced a similar result, with 96 percent of consumers saying they preferred dealing with small businesses.
Once again, good news for local businesses and smaller enterprises who are looking to grow their operations and get consumer loyalty. With consumers, unsecured credit providers and the recovering economy on their side, they stand to make gains over their larger competitors.
The Bottom Line
Although economic growth has been slower than predicted for the first quarter of 2015, most analysts believe that GDP will recover during the final three quarters of the year. With unemployment dropping and wages gradually increasing plus the relief offered by the reduction in the oil price, consumers will have more to spend.
Small businesses can see this as heartening news: according to surveys, consumers don’t mind paying a little more in order to support local business as long as they’re getting the products and services that they want and are able to get the improved service levels they’ re expecting.
If you’ve been hesitant about expanding your business, you need to decide whether or not to take the plunge while finance costs are still low. It may prove considerably more costly to use credit for expansion in the years to come. For now, small businesses are in a very favorable position to build on their products and infrastructure.
The window for negotiating favorable financing terms may still be open, but with Wall Street putting pressure on the federal reserve to raise interest rates sooner rather than later, it won’t last forever. Although analysts favored a June hike in interest rates, the probability of this materializing is now regarded as being relatively low but by December there is a greater than 50 percent chance of the expected increase being announced according to CNBC.
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